Bookkeeping for small businesses

Bookkeeping is the recording of all the financial transaction for businesses. Timely, correct and complete bookkeeping is vital for any business owner’s decision makers. Keeping a close eye on your business operations can help your company be a success story.

The structure of bookkeeping is the backbone of the company

Every bookkeeping system has similar constant elements. These are some items of what your business requires to ensure that it’s bookkeeping by that meets GAAP requirements:

• Chart of Accounts: All accounts in the bookkeeping systems that hold the records. They are like files in a filing cabinet, and correct decision making on what goes in each account is essential.
• Journals: Where transactions are first entered, called journals because years ago before software programs took care of these items, separate books called journals or ledger books were used to record transactions.
• General Ledger: Where the summaries of all transactions are held. When ledger books were kept, all income and expense transactions were transferred at year end to close our journals to start a new fiscal year.Yes all entries have two sides a debit and a credit. You don’t really enter things twice but make sure that each entry has two sides. In modern software’s for bookkeeping, you shouldn’t be able to make single entries. Assets, expense and owners withdrawals are all debits. To increase a debit you debit that account. For example if you put money in the bank, the bank is increased which is a debit. Your bank account is an asset, so deposit would increase the bank. When you write a cheque from the bank, you decrease the bank account, which would be a credit.How can you tell if your company is profitable? What test is used?Current assets plus Current liabilities equals Current ratio$5,200 divided by $2,200 equals 2.3636 (current ratio)   Bookkeeping Practices to Help You Manage Your Business
• Efficient bookkeeping practices are essential to keep any small business running smoothly. Some l hints to help you make your bookkeeping process simpler:
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• Usually you look for current ratios of 1.2 to 2, so any bank would consider a current ratio of 2.36 excellent. A current ratio lower than 1 is considered a red flag because that indicates that the business doesn’t have enough current assets to pay its current bills.
• The following is an example of a current ratio calculation:
• The current ratio test is used to compare the current assets of a business to its current liabilities. This ratio provides a snapshot of your business’s ability to pay its bills. Use the formula for calculating the current ratio as shown below;
• Liabilities, equity, and income are credits. To increase a credit, you credit that account. So if you had income from work you do, the income is increased. Where is the other side? If you sell things and give time for the person to pay you, the debit side is accounts receivable. If you get cash immediately, the debit side is the bank.
• Certain general ledger accounts have normal state they exist in; like water is normally liquid the following are true;
• Double entry! Say what?

• Use a good chart of accounts that best keeps track of all your bookkeeping information.
• Balance and record daily sales and cash sub ledgers daily.
• Reconcile your bank account (s) and credit cards each month
• Watch closely your accounts receivable from customers and make sure you have someone dedicated to resolving issues and late pays.
• Pay your bills accurately and on time. Some creditors give you discounts for early payment, so take advantage of them. It is surprising how many companies share info on slow payments and trends quickly become apparent.
• Set up sales and revenue goals and monitor your progress closely.
• Budget for all your expenses and compare your performance to budget regularly each month or quarter.
• Watch for unusual changes in sales or expenses using comparative income statements found in most accounting software programs
• Monitor your gross profit closely and make any necessary pricing or purchases decisions. If business grows too quickly for you to handle, increase your prices! If it slows down or other offer better pricing and grab your customers, find ways to cut overhead and reduce prices to meet market prices.
• Take care of slow moving inventory. That’s what sale are for.
• Pay your employee withholding taxes and GST/HST when due to avoid costly audits, penalties and fines. You really don’t want the government at your door each quarter.
• Take physical counts of your inventory and compare to your bookkeeping records on a regular basis. This will show “shrinkage” or even theft.Proper bookkeeping is all about keeping track of where your business’s assets are, to keep everything flowing smoothly. Some things you need to think about with your cash that will eliminate possible mishandling of cash;
• Cash management

• Make sure that the person who accepts cash isn’t also recording and reconciling the transaction.
• Make sure that the person who authorizes a payment isn’t also signing the cheque or paying out cash.
• Don’t put too much trust in one person, unless it’s you. Even counting cash should have more than one person and each signs to acknowledge the amounts are correct.
• Reconciling the bank should be someone who is not handling cash or making bookkeeping entries. Review the reconciliation carefully, and even ask to see the report and sign it if you agree with the report.