Bookkeeping Basics

Once you've learnt some bookkeeping basics, you'll find that you've developed most of the skills you need to extract some really useful information out of your business.

The decision to use a professional bookkeeper needs to be a commercial one. Bookkeeping is rarely a value creating exercise in business (unless of course you run a bookkeeping business), although if done properly, the information provided can assist you in making intelligent profit improving business decisions. So, if you can be out selling or promoting your business, then it's better to hire a professional.

Even if you do hire a professional bookkeeper, you will find you can keep your costs down by doing some of the work yourself. Book keeping is about having the self-discipline to do simple things regularly.

Before you start out you need to decide whether your bookkeeping system is going to use accounting software or paper ledgers. The principles are the same for each. There are loads of reasonably priced bookkeeping software packages aimed at the small business, and with open source accounting software, these can be acquired for next to nothing.

Bookkeeping Basics - Organizing the Paperwork

The human mind is not the best at remembering details about hundreds of different transactions over time, so get a piece of paper to support anything that happens financially in your business, and keep it in a file, no matter how small or insignificant the transaction may seem. Make helpful notes on those papers, referring to events, products and customers etc, so when you look back in 2 months time you can remember what it was for.

Do these things and you're already half way to a decent bookkeeping system:-

• If you buy something but don't need to pay for it straight away, obtain an invoice. Follow these accounts payable procedures.
• When you pay cash for something obtain a receipt.
• If you sell something and you don't receive any money at first make an invoice.
• If you receive a payment, issue a receipt.
• Under no circumstances mix up your business transactions with your personal finances. Keep personal and business transactions entirely separate.

Organize your filing in a way that sales invoices paid and unpaid are kept separate to purchase invoices paid and unpaid (4 categories). If you sort them by the company you sold to / received goods from, then you can quickly add up what you owe and write checks (cheques) to pay what you owe.

With the payment include what is known as a remittance advice. This is a slip of paper that tells the supplier what you have paid so they can record it correctly in their bookkeeping system. Likewise if you receive a payment from a customer you should also receive a remittance advice to see what they are paying.

When you have paid / received payment, write a payment reference on the invoice and mark it as paid. Move it into the paid section of the file.

These are the bookkeeping basics you need to have your paperwork in order, and how to operate your filing efficiently. Now you need to record the events in what is known as the ledgers.

Top of Bookkeeping Basics

More about Bookkeeping:

Basic Bookkeeping - What to Record in your ledgers and how

Business Bookkeeping overview.

Introduction to Double Entry Bookkeeping.

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