Top Ten Bookkeeping Basics
Even if you employ the services of a bookkeeper or accountant, as a small business owner, you should at least have a basic understanding of the different types of accounts that are used to help organize your company’s finances. Listed below are 10 of the top, and most basic bookkeeping accounts for small businesses: ●
Cash account
Many bookkeepers will use two separate logbooks for recording and keeping track of business transactions that go through the cash account, one for ‘cash receipts’ and the other for ‘cash disbursements’.
●
Accounts payable
Sending money out of the business is a necessary evil, but provided your bookkeeper is keeping a clear and organized accounts payable, then you can be assured that payments will happen on time and that no payment is made twice. If a bill is paid early, you may even qualify for a business discount. ●
Accounts receivable
Payments aren’t always collected for products or services sold, immediately, and without an accounts receivable, you’ll quickly lose track of what you may be owed. You also need this to ensure that bills and invoices are sent out in a timely manner.
●
Loans payable
This account is where you’ll find what you may be owed and what may be due, from having borrowed money to buy equipment and other items for your business. ●
Inventory
It’s essential that you effectively keep a record of all stock, and each product must be accounted for and tracked. Physical counts should also be carried out at regular intervals, to ensure that the data tallies.
●
Purchases account
Having a functioning purchases account will help you when calculating the cost of goods sold, or COGS, and this must be subtracted from the sales figures to find he gross profit of your company. Raw materials or finished products that you buy for your business should be recorded and tracked in this account. ●
Sales account
Whatever your company sells must be recorded in the sales account, and without this being maintained accurately and regularly, you won’t be able to see where your business stands financially.
●
Payroll expenses account
Having an up to date payroll expenses account is a vital element of any business, and you’ll need to keep it clear and accurate for tax and government reporting. ●
Owners’ equity account
There are many small businesses that are either owned by an individual, or by several people as part of a group of partners. Because they’re not incorporated, there are no stock shares to be divided among the owners, so money invested into the business is kept logged in ‘capital accounts’, while money taken out is recorded in ‘drawing accounts’. To operate fairly, your businesses books must log all owners’ equity accounts.
●
Retained earnings account
Profits made from a business that are not paid out to the owners, and are instead reinvested in the company, are tracked in a ‘retained earnings account’. This account is easy to manage, but is important for investors and lenders wanting to track the company’s progress. Communicating with your bookkeeper or accountant on a regular basis and trying to understand how they function, helps you to have a clearer picture of your company’s finances, and helps you to be more in control of your own business.
Many business owners think of bookkeeping as an unwelcome chore. But if you understand and make effective use of the data your bookkeeper collects, bookkeeping can be your best buddy, helping you run your business more effectively. Miami Bookkeeping was founded with the purpose of helping small businesses outsource the time-consuming and tedious work known as bookkeeping. For more than 10 years, our company has been providing bookkeeping services in Miami and Coral Gables for hundreds of small businesses. If you are looking for bookkeeping in Miami or Coral Gables, contact us today at support@miamibookkeeping.com