Bookkeeping 101: Bookkeeping Basics for Small Businesses

accounting for small business

So, I know if you’re also going to get ready to sell your business, accrual is a great way to show a potential interested buyer that there’s a long-term strategy for future income coming in. Cash accounting tends to be a bit of a pendulum because you’re waiting for that money to come in. So, it becomes very important to have your revenue on point and follow up methods to get all the revenue you can before the month’s end. When doing the bookkeeping, you’ll generally follow the following four steps to make sure that the books are up to date and accurate. Remember that each transaction is assigned to a specific account that is later posted to the general ledger. Posting debits and credits to the correct accounts makes reporting more accurate.

We offer flexible accounting plans to fit businesses small and large, across all industries, with integrations like payroll, time-tracking, and payments to help you grow efficiently when you’re ready. Accounting services pay special attention to your company’s expenses—not bills that you enter and pay (though some support this), but rather other purchases you make. This is an area of your finances that can easily get out of control if you don’t monitor it. So, small business accounting software separates them into expense types. Next, the software compares them to your income using totals and colorful charts. Xero is best for small businesses where multiple people need to access the accounting software.

Review month-end balance sheet vs. prior period

Or learn the basics of bookkeeping with Intuit’s professional certificate. When running a small business, you should choose an accounting software product and consider hiring an accountant. Accounting software does a lot of the heavy lifting (such as keeping track of debits and credits) for you. However, it’s still important to understand basic accounting principles to know what’s happening behind the scenes.

accounting for small business

Here’s a helpful guide to help you figure out what you need to do in your area. In a sole proprietorship, there is no legal separation between you and your business, so you can be held personally liable for any debts your company may owe. A sole proprietorship is an unincorporated business that only has one owner. This is a popular business type among freelancers business accounting and entrepreneurs because it’s easy and affordable to register as a sole proprietor. You’ll want to make sure you have all the necessary permits and licences that your state requires. An accountant may be able to advise you on which legal structure is best for your business, depending on its size, complexity, number of founders, and other factors.

Account Information

Here are some basic steps to get you started keeping track of your small business’s financial information, generating financial statements, and filing taxes. When using a double-entry accounting system, you record transactions as journal entries. Your general journal lists these entries in chronological order and records the amounts debited and credited, transaction dates and explanation of the transactions. Most small business owners—especially service based businesses— opt to use the cash method, although small businesses with inventory might be required to use the accrual method.

Generally speaking, bookkeepers help collect and organize data and may have certain certifications to do so for your business. On the other hand, accountants are generally equipped with an accounting degree and may even be state-certified CPAs. You can expect most bookkeepers to maintain the general ledger and accounts while the accountant is there to create and interpret more complex financial statements. The cost of accounting services varies based on the type of plan and add-on services you choose. Intuit QuickBooks has helped over seven million customers worldwide with their accounting needs, operating using simple and effective processes.

Intuit QuickBooks

When a payment is processed, the bank and the accounts receivable are adjusted automatically by the accounting software. If you want to accept online or credit card payments, you can use either Stripe or Paypal. Stripe allows you to directly integrate any application for tracking invoices, expenses, and more. Now, journal entries follow the double-entry bookkeeping method that we described above.

But once expansion begins to start, don’t delay on finding a good accountant who will keep your best interests in mind. When shopping for e-commerce accounting software, you’ll want to make sure that it connects to all your sales channels as well as the other business software apps you use. Not all accounting software platforms connect to all sales channels, so use this criteria to narrow down your search as you make your final selection. You’re definitely running a P&L and then sending them the balance sheet also from the prior year. But beyond that, organizing yourself and your receipts—I know Gary, you mentioned the receipts before and scanning them all in, organizing them by month.