Congratulations on opening your small business! Running your own business can be an incredibly rewarding and challenging task. One of the most daunting aspects of operating a business can be bookkeeping; it is also the most risky circumstance for mistakes. Before deciding to operate your own business, you should have a better understanding of money management. Included here are a few things you should know about bookkeeping as you embark in your new role.
The most simple aspect of bookkeeping lies with cash. It is easiest to monitor business transactions with cash, however it is critical that you keep two journals for tracking the activity. It is easiest if you make these two files for Cash Disbursements and Cash Receipts. Deposits and withdrawals must be carefully tracked with cash as well.
Another step that it is critical to understand is accounts receivable. When your company sells a product or service and does not receive payment immediately, you will have “receivables” coming from customers. You must keep careful track of this element so that you will be sending timely and accurate bills or invoices.
Nearly all businesses are going to have some kind of storage to track. Monitoring your inventory can ensure you have everything accounted for. Your inventory is comparable to money sitting on a shelf. While it is wise to be tracking these inventory numbers electronically, you will need to do a physical count periodically to ensure accuracy.
This step is quite easy to understand as the opposite of accounts receivable. Just as money must come into your business, money must go out. Accounts Payable tracks all outgoing expenses of the business. This is an incredibly important step as you don’t want to pay anyone twice or face late fees. Keep in mind, contrary to personal payments, if you pay your bills early you will sometimes be disqualified for discounts.
While you may love your employees and coworkers like family, they remain employees who will need payment. For most businesses, this is the biggest expense you will face on a monthly basis. This bookkeeping account must be kept accurate and up-to-date to meet tax and government requirements. Payroll is an incredibly crucial process and your business can get in a lot of trouble if this account is neglected.
Similar to Accounts Payable, Loans Payable is an account that tracks the money leaving your business. Loan Payable encompasses all debts owed from your company, including property, equipment, furniture and other items. Your business can get in serious trouble if you fail to pay loans on-time. You can have property and equipment repossessed as well as face high monetary penalties.