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5 Steps on Bookkeeping for Small Businesses

Regardless of the business’s size, maintaining accurate and organized accounts is crucial. To grow the business, it’s essential to develop strategies focusing on cash flow, which highlights the significance of maintaining accurate bookkeeping practices. Moreover, adherence to compliance standards is essential, which further highlights the role of bookkeeping. Given its significance, it’s important to follow proper bookkeeping guidelines. Let’s explore the steps involved in bookkeeping for small businesses:

5 Steps on Bookkeeping for Small Businesses

  1. Collecting Data:

The initial step in bookkeeping involves gathering comprehensive data, including invoices, receipts, bank statements, contracts, credit card statements, and other relevant records. Each piece of data should be accompanied by a clear entry date. In the case of payroll, essential details such as timesheets, salary information, benefits, deductions, and related information must be collected. Additionally, inventory reports specifying quantity and value are also necessary for accurate record-keeping.

  1. Deciding on the Accounting System:

The subsequent step involves determining the accounting system, whether manual or digital. A manual accounting system relies on ledgers and is more labor-intensive and tedious, as data entry and calculations can be automated in software-based accounting. Additionally, software-based accounting offers enhanced data security. Manual systems may create challenges in accessing historical data and scalability. However, the choice depends on factors such as the complexity of operations, budget constraints, access to technological expertise, and other considerations.

  1. Setting up Chart of Accounts:

A chart of accounts serves as a fundamental tool for organizing financial data in manual or software-based accounting systems. It categorizes financial transactions into specific groups that align with main categories such as assets, liabilities, equity, revenue, and expenses. For instance, assets may include subcategories like cash, equipment, and inventory. Liabilities can include subcategories such as loans and accounts payable. Each category and subcategory is represented numerically, facilitating easy organization and access to data. This structured approach ensures that financial information is accurately recorded and readily available for analysis and reporting purposes.

  1. Deciding Type of Entry:

In single-entry bookkeeping, each financial transaction is recorded only once. For example, if a client’s invoice is paid, it’s recorded as an expense. This method is straightforward and suitable for bookkeeping for small businesses with a lower volume of transactions. In contrast, double-entry bookkeeping records each transaction in two categories, affecting two accounts. For instance, when a business makes a sale, it records both the increase in revenue (credit) and the corresponding increase in assets (debit). This method is robust and aids in error detection. 

  1. Recording Data:

Accurate recording of all transactions is essential in the bookkeeping process. Timely recording, preferably through automation, facilitates efficient data analysis for making informed financial decisions. Prompt recording of data helps in identifying and resolving issues such as inaccurate client invoices, budgetary constraints, or payroll discrepancies. By recording data on time, businesses can avoid potential problems and ensure the integrity of their financial records. Additionally, these recorded transactions serve as the foundation for preparing accurate and reliable financial statements, which are crucial for assessing the financial health of the business.

Other essential accounting functions, such as reconciliation, financial statement generation, and tax preparation, are integral aspects closely linked with bookkeeping.

Bottom Line:

Following the correct guidelines is essential for ensuring business continuity and long-term success. Additionally, the expenses linked to recruiting and training in-house bookkeepers, as well as asset maintenance, can create challenges, necessitating the need for outsourced assistance from experts who require minimal supervision and offer cost-effective solutions.

We, at OBS, are widely acknowledged for providing best-in-class outsourced bookkeeping services. We comply with rigorous standards for bookkeeping, conduct comprehensive reviews, and implement stringent data security measures—both physical and virtual—to safeguard our clients’ sensitive information. Choose OBS for accurate bookkeeping services for small businesses as well as medium and large businesses, ensuring prompt responses to queries and maintaining transparency.

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