8. business bookkeeping basics
activities and accounts
Here is a list of basic activities that you might do which have a financial component.
These Accounts will appear on either an Income statement (IS) or a Balance Sheet (BS) which are found on the Chart of Accounts in bookkeeping software.
- Pay for things to get business up and running : Startup Expenses*
- Pay for expenses with personal money : Capital (BS)
- Invoice customers and get paid money : Income (IS)
- Deposit or withdraw money : Banking or Cash (BS)
- Spend money to keep the business operating : Expenses (IS)
- Spend business money on personal expenses : Drawings (BS)
- Spend money on capital equipment or stock : Assets (BS)
- Receive money from loans : Liabilities : (BS)
- Pay taxes : Liabilities (BS)
- Let customers buy from you on credit : Accounts Receivable - Assets (BS)
- Vendors let you buy from them on credit : Accounts Payable - Liabilities (BS)
Here is a bit more information on Startup Costs by The Balance SMB
Your bookkeeping software should have all these accounts already in the system.
If you are using a Cash Book you will have to manually enter the Account names and when calculating your profit, make sure to exclude the Balance Sheet type accounts.
monthly bookkeeping schedule
Here are bookkeeping procedures that surround business activities, and a rough idea of the time-frames that they should be processed.
As soon as your job for a customer is finished, prepare and send the invoice – make sure to include any costs involved (such as goods or contractor fees). If you have not received some of the bills yet, then wait until they are all in before invoicing your customer, so nothing is left off the invoice. However, try not to wait for more than a few weeks to invoice your customer (it’s vital that you get cash flowing into your business).
If a supplier is being particularly difficult about getting all costs to you, try and send a Progress invoice to the customer and let them know that not all costs are in yet, but you will send them the final invoice asap; or at least contact the customer to let them know what’s going on.
Every day check your bank account (if you have online access) for payments received from customers who pay by Direct banking and allocate payments to your customer invoices.
Once a month on about the 5th, email Customer Statements to your customers (if you make sales on credit) to show them what Invoices or amounts are outstanding – include a reminder of due date of payment. Or alternatively re-send them the invoice by itself with a gentle reminder that it is due now if the Customer is late in paying. If after a few days you still don’t receive payment, start your collection procedures to get the payment in. Follow up on these overdue payments at least once a week.
As soon as you make a purchase with your bank card, keep the receipt – like, do it in the shop as you are walking out or something so that you don’t lose the receipt. Photograph it and save to an online filing system, then you can throw the original out or pop it into your physical filing system.
Once a week - If you have made purchases on credit, enter the bills into your bookkeeping software (you will not enter bills when using a single-entry Cash Book spreadsheet – you will only enter payments of bills).
Once a month between 1st and 10th, reconcile your creditors. This means that if you make purchases on credit, make sure you have all the invoices from the vendor. Then pay the bills by the due date. If you can’t, call them and make payment arrangements – they will appreciate you being up front and honest and it’s better than being hassled by them if you don’t say anything.
If you pay at the time of purchase with bank card or cash, you will not need to reconcile creditors.
As soon as you receive a customer payment by check or cash, mark it off against the invoice and deposit it to the bank account (within a day or two) so that it doesn’t get lost and so your cash flow is good.
Once a month if running a creditors procedure, set up the bill payments to your suppliers either by writing cheques or setting up direct credit payments online. Most vendors have the same sort of date that their bills are due, some will expect payment earlier or later, process the payments by the due date (it will be written on their bill) which may mean you have to pay attention to this process more than once a month.
Once a month (at least) you must reconcile your bank account to make sure all the transactions on the bank statement match the transactions in your bookkeeping software or cash book, at a certain date – like the last day of the month. Make necessary adjustments to get the balance in your bookkeeping system to match the balance on the bank account.
Once a month from about 20th to 30th, after your receipts, payments and bank accounts mentioned above are all entered and reconciled for the prior month, look at your business reports (Income Statement and perhaps a Balance Sheet).
You do not have to have received all customer payments or paid all bills to be able to produce an Income Statement or Balance Sheet. The total of those unpaid invoices goes on the Balance Sheet.
Try to get to grips with your bookkeeping procedures so you don’t look dumb when:
- your bank manager asks you a question
- a customer wants to know how much they still owe you
- a vendor asks when exactly you are going to pay your bill.
Bookkeeping 101- Summary 8: The amounts from business activities are allocated to Accounts in the Bookkeeping system, and the activities fit into procedures some of which should be scheduled every month/week in your diary, so you stay on top of your Bookkeeping.