Are you a startup business or a small business? If so, the sooner you get your accounting systems in place the better for your business. Please read below to learn how you can do this.
Bookkeeping refers to recording all the financial transactions of a business or company. It, therefore, entails recording the sales, purchases, payments, receipts, and accruals for receivables or payables.
Bookkeeping specialists help businesses track their income and expenses for the calculation of profits. It also involves keeping these financial records and retrieving them whenever they are needed.
Bookkeeping requires a proper understanding of debits, credits, and financial statements as well. In the past, bookkeeping has been done manually but has lately involved the use of software to make it less overwhelming.
Bookkeeping doesn’t come easy for startups, and a workable and straightforward bookkeeping approach has to be adopted for financial success.
Here are a few basic steps that startups can take to manage their accounts and record their financial activities accurately:
- Keep all the source documents safe
- Transfer financial information to journals and accounts
- Carry out end-of-period financial procedures
- Close the financial books at the end of a financial period
1. Keep All The Source Documents
Source documents refer to all documents that serve as evidence to the various transactions carried out by a business. They are important when it is time to audit a business’s financial statements.
Source documents are useful as they contain the description of a transaction, the date it happened, the amount of money involved, and the signature of the authoriser.
Source documents may be a paper document or an electronic record. Examples of these documents include the following:
- Cash register tape: this source document indicates the cash sales of a business and is used to record such a cash sale transaction.
- Bank statement: this shows the adjustments to the cash reserve of any business.
- Credit receipt: this source document is useful in recording any fund disbursement from the petty cash.
- Packing slip: for businesses that may offer transport or shipping services to their customers, this document shows the items shipped out to a customer and is, therefore, records a sale transaction.
- Supplier invoice: this document indicates the issuance of payment in the form of cash, electronic payment, or cheque to a supplier. It, therefore, helps in recording an inventory item, an expense, or a fixed asset.
- Sales order: this source document goes together with a packing list and/or a bill of lading and is often used for invoicing a customer, thereby generating a sales transaction.
These and more source documents help in recording purchases and sales, which is critical in the calculation of profits for a business.
2. Transfer Financial Information To Journals
Another essential step of bookkeeping for small businesses and startups is transferring the information on source documents to accounts and journals.
This information is more useful when recorded in journals and accounts as they can be used for official purposes.
Bookkeepers should, therefore, understand how to use source documents to open accounts such as purchase, sales, payable, receivable, and cash accounts.
The figures on these accounts help bookkeepers when it is time to balance financial statements.
3. End-Of-Period Procedures
At the end of a financial period, usually a year, bookkeepers are required to balance the financial accounts of a business.
It involves compiling the various accounts on the financial statements and performing the various reconciliations.
4. Closing The Financial Books
Closing of the financial books involves the preparation of the income and expense accounts of your business and helps in the calculation of the net profit or loss.
Closing the financial books helps businesses as it indicates their progress. Critical financial decisions are also made following the closing of financial books.
Small businesses and startups should stick to the basics of bookkeeping to ensure that essential documents are kept safe for reference and preparation of the various financial accounts.
Closing of financial books during the end of a financial period is also essential for the calculation of net profit or loss for a business.
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