At least one debit is made to one account, and at least one credit is made to another account. One of the first decisions you have to make when setting up your bookkeeping system is whether or not to use a cash or accrual accounting system. If you are operating a small, one-person business from home or even a larger consulting practice from a one-person office, you might want to stick with cash accounting. At the end of the appropriate time period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm.

US business owners can use cash-based accounting if revenues are less than $5 million, otherwise they must use the accrual method. Costs, also known as the cost of goods sold, is all the money a business spends to buy or manufacture the goods or services it sells to its customers. The Purchases account on the chart of accounts tracks goods purchased. Companies also have to bookkeeping for small business set up their computerized accounting systems when they set up bookkeeping for their businesses. Most companies use computer software to keep track of their accounting journal with their bookkeeping entries. Very small firms may use a basic spreadsheet, like Microsoft Excel. Larger businesses adopt more sophisticated software to keep track of their accounting journals.

Bookkeeping Basics for Small Business Owners

Did your suppliers increase their costs and impact your cost of goods sold during the year? All of these things factor into how you plan out the next year. For example, you need to know how much you spent last year on office supplies. You could gather up all of your receipts and spend hours adding together every last cent. Or, you can record each transaction in your books and pull the data with ease when you need it.

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• Use this template to review each item and determine the overall month-end cash position for each time period.
• This saves you the hassle of setting up a merchant account or third-party payment gateway.
• Good accounting software should be easy to use, have affordable pricing, and have enough features to handle all your accounting needs.
• With its bank reconciliation feature, you can link your bank accounts, PayPal accounts, and other data sources to see real-time business transactions.
• And it automates many of the menial tasks that eat up your day.

A New York native, Davina earned her BA in English from SUNY Geneseo in 2018. After graduating, she began her career as a freelance writing generalist before finding a niche writing about SaaS. Davina unironically enjoys testing and reviewing software on her free time but otherwise can be found oscillating between hobbies every few weeks or so — most recently, longboarding. An LLC offers several tax benefits, including simply having the flexibility to choose how you want the entity to be taxed. Helpful tips for the small business owner to survive a bear market, rising inflation and a possible recession. If Bench does your bookkeeping, you can also upload and store as many digital receipts and documents as you’d like in the Bench app. Every transaction you make needs to be categorized and entered into your books.

QuickBooks Online is our pick for the best accounting software

Xero’s many integrations and impressive range of features means that it will likely work well for a variety of business situations. However, as Xero is so scalable, it’s a good match for businesses that are experiencing significant growth or eCommerce businesses that would benefit from the software’s integrations.

Thankfully, your receipts also provide a paper trail of your business activities while away. Revenue is all the income a business receives in selling its products or services. Equity is the investment a business owner, and any other investors, have in the firm. The equity accounts include all the claims the owners have against the company. The business owner has an investment, and it may be the only investment in the firm.

Excel Template

Single-entry bookkeeping is much like keeping your check register. You record transactions as you pay bills and make deposits into your company account. It only works if your company is relatively small with a low volume of transactions. A cash account is one where all of your business transactions pass through to track all of your financial activity. Plus, a cash account is arguably the simplest way to record cash payments, withdrawals and deposits.

On the flip side, accounts receivable is the account that keeps track of all the money that third parties owe to you. Again, it can be customers, banks, companies or anyone that purchased or borrowed from your business. Accounts payable is the account which is used to track all of the money that you owe to a third party, such as supplier companies, banks, governments or anyone you borrowed money from. An easy example to think about is a mortgage as when you take one out, you sign a contract telling the bank you’ll pay them over a period of time in instalments.

Should I do digital or manual bookkeeping for my business?

Edit the list of account descriptions and codes to match your business accounts. The template includes space to record trial balance, adjusting entries, adjusted trial balance, income statement and balance sheet for each account. Zoho Books is an excellent resource for helping your small business manage cash flow and finances. The software lets you automate workflows and work collectively across departments. It includes first rate tools for inventory management, banking, time-tracking, and financial reporting — all backed by an industry-leading UX. Ultimately, the decision will come down to your budget and the features your business needs. Patriot Accounting is priced at $20 – $30/month, with the higher priced tier adding in features like recurring invoices, payment reminders, estimates, and account reconciliation.

Now, Modern software can manage all of that bookkeeping and accounting more quickly and accurately by relying on bookkeeper software. Bookkeeping involves sorting, recording, and classifying all the financial transactions in your business. ZipBooks is best for small businesses in need of affordable, strong accounting.