A Beginner’s Guide To Business Bookkeeping
Getting a new business off the ground takes effort, expertise, and time. When starting a new business venture, owners also have to consider bookkeeping, accounting, and the creation of financial statements so that come tax time, they are well prepared and ready.
Business bookkeeping involves recording financial transactions, posting debits and credits, and producing invoices. It also includes preparing financial statements (balance sheet, cash flow statement, and income statement) and maintaining and balancing subsidiaries, general ledgers, historical accounts, and the completion of payroll.
This can sound complicated if you are a new business owner, unaware of accounting and bookkeeping principles. However, as knowledge is power, if you are to run a successful business, you must understand the basics at the very least.
To help new business owners understand an easy and effective way to be proactive about their bookkeeping, the expert at Hunter Tax Resolution has put together a beginner’s guide to business bookkeeping that will hopefully make things easier.
Decide between a spreadsheet or accounting software
When it comes to bookkeeping and accounting solutions, the first thing to do as a new business owner is to decide whether to use a simple spreadsheet, such as Google Sheets, which is free, or purchase accounting software.
The difference between the two is that accounting software handles all the calculations for you and does it correctly. Whereas spreadsheets are commonly used to analyze money that has been spent and income that has been received but are susceptible to fraud as it’s easy to change information and hard to keep track of who’s making the changes. Accounting software maintains an audit trail keeping you safe.
Open an account to be used exclusively for business purposes
This is rather important. Using a business account for personal expenses is a recipe for disaster and something that should be avoided at all costs. Open a Checking account to be used exclusively for business purposes. It doesn’t even need to be a business account.
Ensure all income and expenses go through the business account
Make sure all expenses are paid through this account, and all income from the business goes into this account. This will make it easier for your accountant and ensure all transactions are noted, and you stay compliant and above board with the IRA.
Record, summarize, and create financial statements for tax returns
Next, it is advisable that once a month, you use the information gathered to enter into the spreadsheet the expenses and income represented in the bank statement. Summarize the expenditures. For instance, if there are ten charges for advertising, add them up and put them in the advertising column. You won’t need an itemized list, as the bank statement can serve as one.
At the end of the year, add up each monthly line, and you will have a financial statement that, if you are savvy enough, is sufficient to prepare a tax return. In any case, it will be highly useful for your tax professional.
Advice From The Pros
When in doubt, use online resources
If you have questions, for example, what is a business expense? Google is an excellent resource. If you are still unsure, write the expense down in the spreadsheet so your tax professional can give you an answer during your next meeting.
Ask for help
When in doubt, ask for help. Once you get beyond income and expenses, things get a little more complex and confusing. Assets and liabilities are reported differently. Repayments of loans can also get confusing. Professionals like us are here to help. All our clients get four, fifteen-minute and two thirty-minute consultations each year included in the tax preparation price.
This ensures you have the chance to thrash out any inconsistencies and clear any nagging queries that may still exist.
At Hunter Tax Resolution, my goal is to exceed your expectations. As the go-to IRS enrolled agent in Tacoma, Washington, you can feel confident I always have you covered. I have been an enrolled agent since 2019 and, as a tax professional, specialize in innovative ways to reduce your tax burden. My services are available to clients across Tacoma, Puyallup, Renton, Olympia, Seattle, and the surrounding areas.