How to Keep Books for a Small Business: Tips and Strategies

how to do the books for a small business

Absolutely, it is possible to handle your own bookkeeping, especially when you're running a small business or just starting out. With the right tools and a solid understanding of basic accounting principles, you can manage recording transactions, reconciling bank statements, categorizing expenses, and preparing basic financial statements. While manual methods like using spreadsheets work for some, others might find accounting software helpful for automating and simplifying the process. Keeping the books for a business, more formally known as bookkeeping, involves the systematic recording, organizing, and maintaining of financial transactions related to a business's operations.

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It is imperative to get your bookkeeping right to ensure you are reporting the correct profit and loss, calculating taxes, and making sound business decisions based on accurate data. Your bookkeeping system should make logging your income as simple as recording expenses. As data goes in, you’ll see your accounts receivable (AR) category grow.

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  • As payments start coming in and expenditures begin adding up, you’ll see you need to do more than just record them—you’ll have to sort them into their own categories.
  • Inventory is the stock of goods a business has on hand or in transit, waiting to be sold.
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  • However, plenty of small-business owners utilize basic spreadsheets such as Excel or even rely on a pen-and-paper ledger.

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Best Free Accounting Software for Small Businesses

Even if you aren’t planning on growing any time soon, you need to have a sense of how much money is coming in versus what is going out. On top of that, you need the data used in bookkeeping to file your taxes accurately. At the end of every pay period, the bookkeeper will accumulate employee payroll details that include hours worked and rates. From there, the total pay is determined with the applicable taxes and withholdings. In the accounting software, the primary journal entry for total payroll is a debit to the compensation account and credits cash.

how to do the books for a small business

By correctly categorizing your expenses — from office supplies to rent — you'll have a clearer picture of where your money is going. Plus, it can help identify tax deductions and ensure you're compliant with tax regulations. But, just like a balanced diet keeps your body running smoothly, organized books keep your business healthy and prepared for the future. So, let's roll up our sleeves and dive into some practical tips to help you keep your books tidy and efficient.