So, you’ve started a business. Congratulations! Now comes the hard part: keeping track of your finances explains Fred Auzenne. A bookkeeping system is essential for any business, large or small. This article will show you how to set up a bookkeeping system for your business.
There are many different ways to set up a bookkeeping system. The system you choose will depend on the size and complexity of your business.
Fred Auzenne highlights some common bookkeeping systems:
1. Manual system:
This is the most basic type of bookkeeping system. It involves recording financial transactions in a ledger by hand.
2. Computerized system:
This is a more advanced type of bookkeeping system that uses accounting software to record financial transactions.
3. Cloud-based system:
This is a newer type of bookkeeping system that stores data online, in the cloud.
No matter which system you choose, there are five essential steps to setting it up:
- Set up your chart of accounts.
- Record your opening balances.
- Record your daily transactions.
- Reconcile your accounts.
- Close your books.
Let’s take a closer look at each of these steps.
1. Set up your chart of accounts.
A chart of accounts is a list of all the accounts in your business. It includes both asset and liability accounts, as well as revenue and expense accounts.
Your chart of accounts will vary depending on the size and complexity of your business. But, there are some general rules you can follow:
– All assets should be listed less than one heading, such as “Cash” or “Property.”
– All liabilities should be listed less than one heading, such as “Notes Payable.”
– Revenue accounts should be listed under one heading, such as “Sales.”
– Expense accounts should be listed under one heading, such as “Operating Expenses.”
2. Record your opening balances.
Your opening balances are the balances of your accounts at the beginning of your fiscal year. You will need to record these balances in your bookkeeping system.
3. Record your daily transactions.
You will need to record all of your business transactions in your bookkeeping system. This includes both income and expenses.
4. Reconcile your accounts.
This step is essential for ensuring accuracy in your books. It involves comparing the balance of each account in your bookkeeping system to the corresponding account in your bank statement. Any differences must be accounted for and explained.
5. Close your books.
This step marks the end of your fiscal year. It involves closing all of your accounts and preparing a financial statement.
There are many different ways to close your books. But, the most common method is to prepare a balance sheet and income statement says Fred Auzenne.
Now that you know how to set up a bookkeeping system for your business, it’s time to get started!
FAQs:
Q: What is a chart of accounts?
A: A chart of accounts is a list of all the accounts in your business. It includes both asset and liability accounts, as well as revenue and expense accounts.
Q: What are opening balances?
A: Opening balances are the balances of your accounts at the beginning of your fiscal year. You will need to record these balances in your bookkeeping system.
Q: What is a daily transaction?
A: A daily transaction is any financial transaction that occurred on a specific day. You will need to record all of your business transactions in your bookkeeping system. This includes both income and expenses.
Q: How often should I record transactions in my bookkeeping system?
A: You should record transactions on a daily basis. This will ensure accuracy and timeliness in your books.
Q: What is the difference between a balance sheet and an income statement?
A: A balance sheet shows the financial position of a business at a specific point in time. An income statement shows the revenue and expenses of a business over a period of time.
Q: What is the purpose of reconciling accounts?
A: The purpose of reconciling accounts is to ensure accuracy in your books. Any discrepancies must be accounted for and explained.
Now that you know how to set up a bookkeeping system for your business, it’s time to get started!
Conclusion:
A bookkeeping system is essential for any business. It helps you track your financial transactions and ensures accuracy in your financial statements says Fred Auzenne.
There are many different ways to set up a bookkeeping system. But, the most common method is to prepare a balance sheet and income statement.
