Accounting for Small Businesses: A Comprehensive Guide to Financial Management

Well, under cash-basis accounting, the revenue would be recognized the moment you paid us, not when we delivered the service. Now, the most fundamental part of accounting is recording and categorizing each transaction that comes into your business into one of these categories. Earlier, we broke down the accounting process into 4 simple steps – recording, reporting, interpreting, and analyzing are very important. Or, what would happen if your customers don’t pay you on time and you don’t have enough cash to pay your vendors? 9 out of 10 small businesses that fail, fail due to financial mismanagement of their company. If Bench does your bookkeeping basics, you can also upload and store as many digital receipts and documents as you’d like in the Bench app.

If you check regularly (and compare to prior months’ numbers), it’s easier to make adjustments so you are neither short nor overloaded. All you need is a simple statement showing your current cash position, expected upcoming cash receipts, and expected cash payments for this period. Keep copies of all invoices sent, all cash receipts (cash, check, and credit card deposits), and all cash payments (cash, check, credit card statements, etc.). If your business incorporates brick-and-mortar sales with online sales, payroll will be different between the two.

Step 8: Make bookkeeping a habit

Mixing together personal and business expenses in the same account can also result in unnecessary stress when you need to file taxes or do your bookkeeping. It could mean a business expense gets lost in your personal account and you miss out on business bookkeeping an important deduction. The income statement is a holistic report that shows revenue and expenses over a set period of time. It can be produced for one period to gain insight into the month’s profitability, or produced for the year to period.

Consider using one of the best bookkeeping services to make managing your books a breeze. When manually doing the bookkeeping, debits are found on the left side of the ledger, and credits are found on the right side. Debits and credits should always equal each other so that the books are in balance.

Top 8 mistakes to avoid when doing bookkeeping yourself

It is money that the business has to spend for it to function properly. The IRS has a January 31 deadline for reporting the annual earnings of your full-time employees (W-2s) and most independent contractors (1099s). This deadline includes mailing copies of the tax forms to the people who worked for you. If your company operates in a state that requires sales tax, make sure you comply to avoid serious penalties.

If you’re a small business owner, it’s necessary to set projections and forecast the future of your business. Bookkeeping accounting lets you know if your small business needs extra employees or requires operational changes. Generally speaking, accrual accounting is better for larger, more established businesses.