Keeping accurate financial records in journals is an essential first step for any system of accounting. Bookkeeping, the recording of all financial transactions, is important to self-employed individuals, organizations and companies. According to the Internal Revenue Service, "Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns and support items reported on tax returns." The totals from multiple journals are recorded in a ledger. No matter your bookkeeping needs, a well-planned and frequently maintained journal is imperative.
Things You'll Need
- bookkeeping software
- business receipts
Prepare and Plan Ahead
Identify why you need a bookkeeping journal. What you need the records for will, in part, determine what kind of format you'll need and the information that you will need to keep track of. Proper bookkeeping is essential for nonprofit organizations in order to keep their nonprofit status. A self-employed individual will need to keep fewer records than a corporation that has employees and offers benefits. Establishing the reason for the journal might seem obvious, but it is indeed important in setting it up properly.
Educate yourself on what kind of records you'll need for your purposes and for the tax man. If starting a business, or find the bookkeeping system for an existing business is inefficient, consider paying an accountant to set up your bookkeeping. A professional will be able to quickly tell you what needs to be recorded, and can inform you on tax breaks you might not be aware of. Also, if you can't or won't keep your bookkeeping up-to-date, consider hiring a professional. If doing your own research, the best resource to finding what records are needed is the Internal Revenue Service, since they have strict requirements and a wealth of information on their website, via the phone and in easy-to-order publications.
Decide on a journal format. Pick a layout that will fulfill all your bookkeeping needs. Consider a physical journal, anything as simple as a notebook that you draw lines on for columns to as elaborate as a purchased leather-bound journal designed for businesses. Computers can make bookkeeping much easier because they have the ability to add a long line of figures with the click of a button. Many word-processing programs have a spreadsheet option that work well for basic bookkeeping. If your needs are more complicated, there are numerous software programs available for purchase.
Starting the Journal
Set up the journal to receive the information you've established and that would need to be recorded. Income and expenses should be kept on separate pages, or in separate files. Be sure to include enough columns and rows for the types of information you need to record. It is recommended that you leave room for additional columns and rows as it is reasonable to assume there will be the need to record figures that hadn't been considered. Information should be organized in a manner that is easy to use when filing tax forms.
Sort your receipts, invoices, check stubs, sales slips, receipts, deposit slips, canceled checks, 1099-MISC forms, credit card receipts and payroll records. Consider that information on some receipts will need to be recorded in more than one place. For instance, a receipt from an office supply store might include an expense for a chair and for a ream of paper. Each expense needs to be recorded appropriately in the journal.
Record all expenses. Whenever you pay money out for a product or service to carry out your business, it must be documented to use it as a tax-deductible expense. Employment taxes and benefits all need to be carefully recorded. There are many possible deductible expenses overlooked by new business owners, such as mileage, rental equipment, car expenses, motel bills, meals, entertainment, donations and gifts. Don't forget to record all automatic payments taken directly from a bank account. Cost of goods sold and inventory are important to record when a business buys and sells a product.
Record all income. Business income includes all sales paid with cash, check, bank deposits, money order, PayPal, debit cards and credit cards. Tips, freelance contract work reported on Form 1099-MISC, income from rental properties owned by the business and interest from savings must be recorded as well.
Record information on assets. The purchase, upkeep and sale of assets such as furniture, equipment, machinery, vehicles and real property all need to be documented and recorded. Your records should include the purchase price, date of purchase, improvement costs, deductions taken for depreciation, the price you sell it for, any expenses related to the sale as well as information on how you used the asset and how you disposed of it.