Running a business requires an entrepreneur to be adept at handling nearly every aspect of the business. However, most entrepreneurs and small business owners are not that great when it comes to managing the financial or accounting-related aspects of their business.
Bringing in conversions and focusing on amplifying your marketing efforts are definitely one of the most important activities you have to focus on in your business, but that doesn’t mean that you can ignore other equally important aspects like Bookkeeping.
For a small business owner, keeping track of the transactions, cash flows, and other accounting items is imperative if it wants to have a clear picture of how the business is progressing from a financial standpoint.
Without this, you will often be clueless on how to project your future financial status or even evaluate as to where you stand today as a business.
This is where learning more about bookkeeping becomes important.
To give you a quick overview, Bookkeeping refers to an accounting procedure that records in-flows and out-flows of cash and remunerations along with receipts, sales & purchase data.
The customer may be an individual, an organization, or an enterprise. In short, Bookkeeping is all about the management and recording of financial transactions.
You can own a successful business only when you manage your transactions well. If you feel that lack of experience or skillset is a major hurdle on your end in managing this business aspect, then you should consider hiring the best online bookkeeping services to do it for you.
This article discusses the most important bookkeeping basics to help our readers understand the fundamental terminologies that business owners must have an idea of. By the end of this article, you will have an insight into what you or your employees will be doing to analyze, organize, and administer monetary activities in a way that helps you achieve error-free books that can later be leveraged to gain important financial information for the firm.
There are two types of assets, namely; Tangible and Intangible. Tangible assets are those that have a physical structure and have financial worth, while intangible assets are theoretical in nature e.g. Patents, Goodwill, Copyrights, etc. but they do carry a financial value.
Our point of discussion is “Tangible Asset” and they are the following:
Cash: Money in the form of currency notes or coins.
Inventory: Includes all types of unsold items or products.
Accounts Receivable: Pending amount to be paid by the customers.
Bonds: Tradeable assets offered by Governments or any business corporates or firms.
Properties: Goods and Chattels e.g. Buildings, Lots, Depositories, etc.
Liabilities refer to the expenses that are obligatory in nature. These monetary payments are in the form of loans, mortgages, or interests. Liabilities can be of two types:
- Accounts Payable: Payments to be made to the supplier or seller that provides primary goods to the businessman.
- Loans Payable: Mandatory paybacks to the bank for debts owed. The loan is taken to buy equipment, property, etc.
You must know your expenditure since your liabilities can put you in hot waters if you don’t take them seriously. Pay debts and bills on time to avoid late submission charges and try to repay your loans as soon as possible.
Equity Or Shares
In businesses that require huge investments, the company sells some of its shares in the share market to other investors in order to receive a substantial amount that proves to be beneficial for the business and helps buffer the reverses at the start.
The profit is then distributed among all the shareholders where each share is of the same financial value. Owners of these shares have the right to sell their share any time they wish.
In simple words, Sales mean to sell something in return for a payment. These are payments made by the customer, for acquiring a product or service, from the business owner. You can experience a surge in your sales through proper marketing and advertisements on different platforms.
Make use of computers to trace sales records. Receipts are an efficient approach to track your sales record. In these modern times, all transactions can be monitored with just a click.
Raw materials are considered as primary goods and what you sell in the market is called finished goods. You need to acquire the basic raw materials for making a finished good and this is the reason you have to make purchases from different suppliers.
You can control your expenses by keeping a record of your purchases. Analyzing the Cost of Goods Sold (COGS) will enable you to set the most suitable price for your product.
Every business needs employees and workers who are, for sure, not going to work for free. They shook hands with you to earn a living. You have to pay them for the efforts these people put in to boost your income.
Workers are paid on an hourly, daily, weekly, or even monthly basis. Sometimes, payroll proves to be a nightmare to the business as it seems to be the biggest expenditure on the Balance Sheet. On top of this, you also need to file for payroll taxes as well.
When a business experiences a profit, it doesn’t fully cash it all out and give it to shareholders. Some of the amounts are kept back in order to fuel the future growth of the business or acquire more assets.
Accounting for retained earnings can be complex since this is the amount that is re-admitted into the business for the next financial cycle.
Revenue generation is the key parameter that defines your position in the market. This is the total amount after selling every product. It tells the business owners where their business excels and where it lags.
Recording revenue generation is crucial since its record can indicate whether or not you are on your way to meet your growth goals.
Gross Profit & Net Profit
Gross profit is the amount that you get after you deduct your Cost Of Goods Sold from your total revenue.
This is the primary amount you have in hand from which you can pay your expenses and taxes.
After you have deducted both of these from your gross profit, you will then be left with Net Profit, which is the final profit made by the business.
Cash accounting comes in handy when there is a business dealing through cash payments. In Cash Accounting, the one who is employed for bookkeeping should register transactions on every sale and purchase.
Accrual accounting is suitable when there is an immediate transaction but there is a need to wait for the payment to be made. This form of bookkeeping is most suitable to businesses that have a higher volume of sales and purchases, requiring them to defer the acquisition and payment of the amount owed to these entities.
Bookkeeping is one of the most important business tasks out there and if you too want to do it on your own, here are some major things you will need to take into account.
- The bookkeeper must have a clear knowledge of accounting and bookkeeping terminologies.
- Bookkeepers must track all transactions keeping in view the prices of the products to avoid any fraud.
- The bookkeeper should know how to operate and utilize computer applications and how to use proper computing tools.
- The bookkeeper should be strongly committed to the business.
- The bookkeeper must maintain a journal, balance sheets, and income statements to register income, expenses, and revenues.
If you don’t have enough time on your hand to do bookkeeping on your own, you can always outsource it to bookkeeping service providers and they can do the task in a professional manner for you.