Before Bookkeeping
Here are 6 things to do to have an effective bookkeeping result.
- Understand the Basics
- Familiarize yourself with fundamental accounting terms and principles.
- Take a basic accounting course or read books on financial accounting to understand terms such as revenue, expenses, assets, liabilities, and equity.
- Select Accounting Method
- Decide between cash or accrual basis accounting.
- Research the pros and cons of each method. Cash basis records transactions when cash changes hands. Accrual basis records income and expenses when they are earned or incurred, regardless of cash flow.
- Set Up a Chart of Accounts
- Organize transactions into categories like assets, liabilities, income, and expenses.
- List all accounts that are relevant to your business, categorizing them properly to track the details needed for financial reporting.
- Choose Bookkeeping Software
- Opt for user-friendly, reliable accounting software.
- Compare features and pricing of various software options such as QuickBooks, Xero, or FreshBooks. Choose one that meets your business size and complexity needs.
- Gather Financial Documents
- Collect all necessary financial documents.
- Ensure you have invoices, receipts, bank statements, payroll records, and tax documents neatly organized and accessible for reference and entry.
- Determine Bookkeeping Frequency
- Decide how often you’ll update your books.
- Based on your transaction volume, set a consistent schedule for entering data – daily, weekly, or monthly.
Things to do to have an effective bookkeeping
- Record Transactions Promptly
- Enter transactions immediately to maintain accuracy.
- Allocate specific times during the day or week to update records without delay to avoid forgetting or misplacing transaction details.
- Separate Business and Personal Finances
- Use distinct accounts for business and personal transactions.
- Open a separate business bank account and use a business credit card to keep personal finances separate from business expenditures.
- Reconcile Bank Accounts Regularly
- Match your bank statements with bookkeeping records.
- At the end of each month, compare your recorded transactions with your bank statement and adjust for any discrepancies found.
- Track Receivables and Payables
- Monitor money owed to and by your business.
- Use your software’s aging reports to ensure timely follow-up on overdue payments and manage cash flow effectively by keeping tabs on bills.
- Maintain Accurate Expense Records
- Keep detailed records for tax deductions and audits.
- Use digital tools to scan and categorize receipts and invoices. Ensure all expenses are documented with relevant notes.
- Review Financial Statements
- Regularly assess key financial statements.
- Analyze income statements, balance sheets, and cash flow statements monthly to understand your financial position and make informed decisions.
- Back Up Data Regularly
- Prevent data loss from failures or breaches.
- Set up automatic backups with cloud storage solutions like Google Drive or DropBox. Regularly verify that backups are complete and accessible.
Tips for Better Bookkeeping
- Automate Recurring Processes – Use software to set up automatic invoicing and bill payments to save time.
- Stay Organized – Develop a systematic filing system both digitally and physically for easy retrieval of documents.
- Keep Up with Tax Deadlines – Mark tax deadlines on your calendar and use reminders to prepare in advance.
- Seek Professional Advice – Hire an accountant or bookkeeper for complex issues or if you’re unsure about certain transactions or accounting rules.
By following these guidelines, you’ll ensure your bookkeeping process is efficient, and your financial records are accurate, ultimately supporting your business’s long-term success.
