Bookkeeping Primer

December 28th, 2010 BY Claire Moore

Bookkeeping is the day-to-day recording of business transactions. We use the source documents that are created when a transaction occurs to obtain the information for recording what happened. What are these source documents? They are such items as: cash register tapes, sales invoices, purchase invoices, checks, and deposit tickets.

This is why it’s so important to create paper documentation of your transactions rather than just exchanging goods or cash. So when you pay for anything, write a check. When you collect payments, deposit them in your business bank account. Even if you do a lot of electronic banking, you can download the transaction information and input it into your accounting software. This will create an electronic record that’s as good as a paper record. It’s important to be consistent in using your bank account for transactions and recording the activity in your accounting system.

We do bookkeeping so that we’ll have the information we need to manage and grow our business. After all, you need to know if you’re making a profit or not. You also need to comply with federal, state, and local reporting requirements for paying of taxes due. Lenders and vendors will need your financial information too. They will need it so that they can evaluate your ability to repay a loan and manage your credit.

So, bookkeeping serves several purposes:
• it give management and owners information about the financial condition of the business
• it ensures the proper payment of taxes
• it gives lenders and vendors the information they need to decide how much credit to give the business

Most people don’t like to do bookkeeping because it tends to be tedious and repetitive. There’s no getting around that. After all, you do the same transactions over and over each month; paying the same bills, making sales, and deposits. Others avoid bookkeeping because they don’t like numbers or math. Numbers can be intimidating unless you’re used to dealing with them. But those numbers tell a story and it’s the story that’s important to you and your business.

It’s more than whether or not you’re making a profit. It’s about how and where you’re making your profit. Who are your most profitable customers? Which products are the most profitable for you? Is the money you spend on advertising making a difference in your sales? Can you afford to hire another employee? Every day you have to make decisions about managing your cash flow. How do you know that your decisions are moving you in the right direction? The numbers tell you.

So, if you’ve been neglecting your bookkeeping, then now is the time to get serious about keeping track of your transactions. If you need help, then hire a professional bookkeeper. That’s one investment that will pay for itself.

Bookkeeping Primer / Small Business Bookkeeping Network by is licensed under a

Categories: For Business Owners

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Bookkeeping Primer / Small Business Bookkeeping Network by is licensed under a