Bookkeeping is an essential part of successfully running a small business. And while many people may complete an education program for bookkeeping that leads to a professional certificate or degree, there are some bookkeeping basics that La Veta, CO small business owners should understand about the process of documenting and recording financial transactions.

First Thing’s First

If you’re just starting the process of bookkeeping for small business, you’ll need to create your accounts, either on paper in a ledge (hence, bookkeeping) or in a software application that usually does some of the background calculations for you. This outlines exactly when your money comes in and goes out according to whether it’s an asset, liability, revenue, expense or equity. Examples of accounts include accounts payable, accounts receivable, inventory, sales, wages, office supplies, equipment, and utilities. Then, small business bookkeeping requires that every instance of money in or out is recorded properly and promptly. Double-entry bookkeeping is a common method of recording entries, and requires each transaction be recorded as a debit and credit.

At the End of the Cycle

Periodically — monthly, quarterly, and annually– a bookkeeper will balance and close the books. If everything has been recorded accurately, the sum of the debits and the sum of the credits will match. If they don’t, there’s an error somewhere that must be corrected before the next cycle (month, quarter or year) begins. When the books are balanced, those numbers are used to prepare financial reports like the balance sheet, profit and loss statement, and cash flow statement. These reports help business owners decide to expand or scale back their business. Small business owners can also use these reports to make a case for getting a business loan or otherwise proving their business is worthy of investment in La Veta, CO.

Bookkeeping is a Financial Building Block

Because the work a bookkeeper does is used for so many other purposes, it’s a key building block of your business from an operational standpoint. Without small business bookkeeping, you’d have no idea who’s paid you, who needs to be paid, and a record of those transactions that’s accessible to other professionals you’ll interact with, like bankers and accountants. Whether you do your own bookkeeping, hire someone local to La Veta, CO to come in part-time or contract with a virtual bookkeeping service, it’s important to understand the tasks that bookkeeping entails. Contact AMR Bookkeeping Services today for help with your small business bookkeeping needs!