Even if you have a professional handle bookkeeping, knowing the basics helps guide business decisions. The best time to learn? At your company's launch.
Small business owners outsource tasks relating to their companies all the time.
Paper shredding, carpet cleaning and power washing are good examples of jobs that need to get accomplished, but not necessarily by the business owner themselves. In fact, a business owner doesn’t really need to know much about the logistics of how those tasks are carried out, just that they get done when they need to get done, by reputable companies.
Bookkeeping is different.
Kerby Accounting & Business Solutions believes that small business owners should have a good overview on what comprises organized bookkeeping — even if we organize that company’s finances. Even if we do the work, we support a team perspective rather than us simply taking the reins.
Information is power, after all, and knowing what accounts we use to keep track of your company’s financial picture — whether that be in the construction, restaurant, medical, legal, hospitality industry or anywhere in between — is how you will be able to judge the failure or success of your business.
Here are a few of the basic account types that comprise your business bookkeeping and track the health of your business:
· Cash accounts. Through here all basic business transactions must pass — it refers to anything having to do with cash. Payment receipts are recorded here, as are any expenses that are paid out.
· Accounts receivable. This is money your business has coming in from clients or customers. Details on dates money is owed, amounts and when invoices were sent is all tracked here.
· Payroll expenses. These can be a company’s largest cost, and if not kept up to date, payroll bookkeeping can put companies at risk of not meeting tax-reporting requirements. It must be done, and must be done correctly.
· Accounts payable. This account is for money going out of the business; think vendors and suppliers you need to pay. (There can be opportunity lurking in the accounts payable account in the form of discounts for early payment or buying in bulk with credit card cash-back programs.)
These are just a few of the basics of bookkeeping. Sales, inventory, purchases and loans payable accounts, of course, all need to factor in there as well, along with owners’ equity and retained earnings. As a business owner, having a general overview of what these accounts contain is a huge asset when pulling together data for planning decisions; when checking that your bookkeeping firm is doing its due diligence and when accessing these materials in case of audit.
The best time to get an understanding of the basic accounts that go into bookkeeping for your small business is right at the beginning, if possible — at launch. As a business owner, starting with this knowledge empowers you right from the start.
And in these days of COVID and all its uncertainty, these details are even more imperative.