Basic Bookkeeping Principles
Bookkeeping is the process of keeping track of your business' financial transactions. Although it often feels like a chore, it is actually an invaluable source of information. If you stay current with your bookkeeping, you will have up-to-date information about whether you are spending too much on certain types of expenses and you can take steps to remedy the situation. In addition, timely and accurate bookkeeping helps you to pay your taxes on time, which enables you to avoid penalties and late fees.
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Income
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Bookkeeping records should include an accurate tally of business income, including all sales and transactions that result in a payment either immediately or at some point in the future. Set up your bookkeeping system to enter sales amounts at intervals that correspond to your sales rhythm. If your business relies on a limited number of large sales, track each sale individually. If your business makes numerous small sales, tally the results by day. If you receive income from multiple sources, such as several sales locations, break down your sales to track the amount transacted at each location. Tally your gross income periodically, and at least once a month.
Expenses
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Set up your bookkeeping system to track your business expenses. Break down these expenses into categories such as materials, rent, labor and advertising. Tally your monthly totals in each category, and track the percentage of your gross income that you spend in each category.
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Accounts Receivable
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If your business makes transactions for which it does not receive immediate payment, set up your bookkeeping system to track the payments that you receive on customer accounts. Develop a schedule that integrates the payment terms for each client, such as 15 or 30 days, with their purchasing history so that you know when their payments are due. Follow up with delinquent accounts by calling their bookkeeping departments and reminding them that payment is due.
Accounts Payable
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Keep track of expenses that your business incurs that you pay over time, such as invoices for materials that allow payment terms such as 15 or 30 days, or utility bills with specific due dates. Stay abreast of payment schedules and plan ahead to budget for upcoming payments.
Taxes
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Your business accrues taxes with virtually every transaction it makes, but pays taxes much more infrequently, such as monthly or quarterly. Keep track of taxes that you collect in the form of sales tax, and taxes that you withhold from employees' paychecks. If possible, deposit these amounts in a separate bank account and, at the very least, know how much you owe for each tax period so you do not mistake these funds for available capital. Fill out your tax forms and pay your taxes on time.
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References
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