How to Set Up Books for a Small Business
Small business books are easily set up in very little time. The key to setting up your books is to think about your needs. Every small business is different, but as the owner, you need to be your own advocate for success. Will you have employees? What tax forms will you need? You will need to understand to be willing to your business. Let's examine how to set up your small business financial record-keeping system.
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Instructions
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Five Steps to Small Business Books
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1
Form your business chart of accounts. The chart of accounts is a numbered index that serves as the master list to your small business books. A chart of accounts can simply be a two-table: account number and account description. Use a system of tens for numbering. Categorize your accounts with this numbering system. For example, your income accounts could be 21 to 29. Expense accounts could be 31 to 39. Then your current and long time assets and liabilities (debts) will each have their own number range, such as 41 to 49 and 51 to 59 respectively. In creating your chart of accounts, name accounts that will either categorize things you or the IRS will need to track.
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2
Open a check register for your business checking account. This will serve as the master ledger of your small business books. Be sure to keep this up to date and reconcile its data monthly against your banking statements.
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3
Prepare asset and liability accounts. Your business books will include current asset accounts, fixed asset accounts, current liabilities and long-term liability accounts. Your current assets are cash on hand, your bank account balances, accounts receivable and any inventory. Your fixed assets are land, equipment, furniture, vehicles, buildings and machinery. Current liabilities are debts that are normally paid within a year, and long-term debts are debts that have longer pay-off expectancies. For each asset and liability account, create a table that is headed with the account number and has columns for the date and the balance of that account for the date.
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4
Prepare income and expense accounts. Record your income and expenses with tables similar to your checkbook register and keep a running balance.
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5
Set up your payroll system. To keep track of paying employee wages, you will need time sheets, deposit records and tax records. Obtain time cards for each employee. Create a separate business bank account just for payroll deposits and create a folder or binder in which to archive them. Use the IRS Circular E Employer's Tax Guide (see resources) to determine the withholding amounts for your employee(s). Record information about payment and withholding amounts on your individual employee records.
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Tips & Warnings
You don't have to feel overwhelmed about setting up your small business books! Remember that you are starting a business, and your finances are the thermometer of your business's success.
Don't forget to gather necessary tax forms after you have set up your small business books. Consult with your accountant to be sure about your business structure and its tax forms needs.
