Take note that most small business owners often make use of a simple bookkeeping system to keep track of their finances.
Every small business owner knows well enough that you cannot run a successful business without having to record, organize and monitor your finances. While having a whole accounting team is not often really necessary for small businesses, it is essential for every small business owner to know about the basics of bookkeeping.
Take note that most small business owners often make use of a simple bookkeeping system to keep track of their finances. As for businesses with more complex financial transactions, they make use of a double entry system for their bookkeeping.
How is bookkeeping different from accounting?
Bookkeeping plays an important role for accounting functions. Bookkeeping is where you collect all your financial transactions, record each transaction in your accounting journal, and organise all financial records coming in and out of your business.
As all financial transactions are recorded, they have to be summarized at the end of every time period and this is where an accountant steps in. Some companies perform quarterly reports, but most small enterprises perform their financial summaries and reports at the end of every year. This is also usually in preparation for the tax season.
An accountant reviews, interprets, and analyzes all your recorded financials. It is also an accountant’s job to prepare your year end financial statements and reports in accordance with the governing law.
List of bookkeeping terms
An effective bookkeeping starts with understanding the basic and relevant terms used in bookkeeping and accounting. Having said that, here is a list of basic terms you should be aware of:
Account
It is where you record all financial entries with the similar nature. One example for this is the “Sales account”, this is where you input all income that goes into your business.
Assets
This is basically everything that your business owns and is used to run it. Asset accounts are also found in the balance sheet which often includes your cash accounts, inventory, receivables, and fixed asset accounts.
Balance sheet
This refers to a financial report that has the summary of all your business assets and liabilities. A balance sheet basically shows what your business owns and owes. More so, it also shows the financial position of your business.
Equity
The amount every business owner contributes to the business from personal funds (capital) minus how much has been withdrawn for personal use (drawing).
Liabilities
This refers to the debts the business owes such as loans, bills, credit card balances, and debts owed to other businesses.
Revenue
This is all the income every business receives.
