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Book keeping basics9/24/2023 ![]() ![]() If you ever hire a bookkeeper or accountant to help you with your books, double-entry is what they’ll use. Most accounting software today is based on double-entry accounting. Each item is then entered into the general ledger twice, as both a debit and a credit. Under double-entry bookkeeping, all transactions are entered into a journal. ![]() It’s simple, fast, and good for really basic bookkeeping.ĭouble-entry is more complex, but also more robust, and more suitable for established businesses that are past the hobby stage. If you’re just starting out and are still in the hobby stage, single-entry is probably right for you. Assets and liabilities (like inventory, equipment, and loans) are tracked separately. Under a single entry, journal entries are recorded once, as either an expense or income. There are two main bookkeeping methods: single-entry and double-entry bookkeeping. Or, it could mean your CPA spends more time doing your taxes. It could mean a business expense gets lost in your personal account and you miss out on a critical deduction. Mixing personal and business expenses in the same account can also result in unnecessary stress when filing taxes or bookkeeping. If you’re running a corporation with no sufficient distance between your finances, there’s a chance you could be held liable for debts incurred by your business. ![]() The first step to mastering your business finances is pretty simple: get a business bank account, separating your business and personal expenses. Step 1: Separate your business and personal expenses When you’re stuck in the minutiae of reconciling your transactions, this won’t feel like “seven easy steps”.įor the sake of explaining the basics of bookkeeping, here are the first seven steps you’ll need. Where to start The first seven steps of a bookkeeping process Regularly organizing and updating your books can help you catch that erroneous overdraft fee today, rather than six months from now when it’s too late to bring it up. Before you know it, you’re buried in paperwork at tax time. If you wait until the end of the year to get your financial transactions in order, you won’t know if you made a mistake. They’ll then search for these on your balance sheet, income statement, and statement of cash flows. They can’t do that without looking into things like revenue, cash flow, assets, and liabilities. Lenders and investors want a clear idea of your business’s financial state before giving you money. These are often a prerequisite for getting a business loan, a line of credit from a bank, or a seed investment. Doing so lets you produce financial statements. ![]() If you need to borrow money from someone other than friends and family, you’ll need to have your books together. So, having your books in order can remove a huge layer of stress if you ever get audited. The IRS also has pretty stringent recordkeeping requirements for any deductions you claim. Thus, the bigger your tax return will be. The more information (and supporting documents) you can give your CPA, the more deductions you’ll be able to legitimately claim. Keeping an up-to-date set of books is the best way to track tax deductions (expenses that you can deduct from your taxable income). It ensures that you don’t miss out on tax deductions ![]()
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