What is Bookkeeping? Business Owner’s Guide

I have learned a great deal of basic bookkeeping in this course but have limited knowledge on how to actually perform all of the duties. In this module, you’ll be introduced to the role of a bookkeeper and gain an understanding of how to use the accounting equation and double-entry accounting. Balancing your books allows you to catch any errors or mistakes in your bookkeeping. Accounts receivable (AR) is the money your customers owe you for products or services they bought but have not yet paid for.

While it may be easy to confuse the two, they are not the same thing. Accounting is the umbrella term for all processes related to recording a business’s financial transactions, whereas bookkeeping is an integral part of the accounting process. Our bookkeepers here at Bench can do your books for you entirely online. We’ll also give you simple software to produce financial statements, keep track of your daily expenses, and help make tax time a breeze.

Bookkeeping basics FAQ

This will allow you to quickly catch any errors that could become an issue down the road. At tax time, the burden is on you to show the validity of all of your expenses, so keeping supporting documents for your financial data like receipts and records is crucial. Mixing together personal and business expenses in the same account can also result in unnecessary stress when you need to file taxes or do bookkeeping tutorial your bookkeeping. It could mean a business expense gets lost in your personal account and you miss out on an important deduction. If you need to borrow money from someone other than friends and family, you’ll need to have your books together. Doing so lets you produce financial statements, which are often a prerequisite for getting a business loan, a line of credit from a bank, or seed investment.

When you’re stuck in the minutiae of reconciling your transactions, this won’t feel like “seven easy steps”. The IRS also has pretty stringent recordkeeping requirements for any deductions you claim, so having your books in order can remove a huge layer of stress if you ever get audited. You can’t run a healthy, successful business without having your books in order.

Balance your books

A small business can likely do all its own bookkeeping using accounting software. Many of the operations are automated in the software, making it easy to get accurate debits and credits entered. As you dive deeper into the bookkeeping process, it may be tempting to blur the lines between your personal and business finances, but it’s not the best idea. By avoiding this, you’ll reduce the risk of triggering an IRS audit and will allow an accurate picture of your business finances. Not only can this help you set goals, but it can also help you identify problems in your business. With an accurate record of all transactions, you can easily discover any discrepancies between financial statements and what’s been recorded.

QuickBooks Online users can choose QuickBooks Live Bookkeeping to get year-round access to verified experts who are focused on their success. From the start, business owners can get personalized answers to questions and spend less time on their books. The accounting equation means that everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Owners of the business have claims against the remaining assets (equity).

The first seven steps of a bookkeeping process

Accounting software can streamline your bookkeeping process and make your financial management more efficient. It’s useful for business owners looking to save time and avoid common accounting errors. Bookkeepers record and classify financial transactions, such as sales and expenses. They maintain accurate records of daily financial activities and manage accounts payable and accounts receivable. The accrual accounting method records financial transactions when they occur rather than when cash exchanges hands.