Basics of Bookkeeping for Small Business
Tom Green had a knack for fixing things and started his
own handy-man business.
Tom knew that paperwork was not his thing so he persuaded his wife Mary to take care of the bookkeeping
basics because paperwork was her strength.
Mary knew that she was going to need some assistance along the way to get the right systems into place.
Mary knew that she could rely on a really neat website called Beginner-Bookkeeping.com to guide her in the right direction...!
...and she read up on some important background information such as:-
Day to Day office Procedures
Tom and Mary met with their bank representative to get the right types of bank accounts set up for the business.
Mary set up an organised filing system to keep the piles of papers on the desk to a minimum, as well as keeping a computer filing system.
She investigated what software would be best for them to use and selected the one she believed was right for their business needs. Getting to know the software and understanding the fundamentals of stuff like double-entry bookkeeping and ledgers and journals took some time but she persevered.
Home Office Tax Expenses
Having an office at home meant that they could claim home office tax expenses at the end of the tax year so Mary kept a readily available folder of the ones that could be claimed.
Sales Invoices and Collecting What’s Owed
With their new venture under way, the first thing Mary did was to
give Tom a notebook so that he could record how much time he labored for each customer with the description of the work he performed.
There were materials Tom had to buy to complete
his jobs such as nails and timber and paint.
Whenever Tom bought these items he wrote the name of the customer on the receipt/invoice so Mary knew which customer to on-charge the costs to.
As soon as a job was complete Tom gave Mary a copy of the details from his notebook and Mary produced a sales invoice
ensuring to include the markup prices on items Tom had purchased.
She printed the sales invoices, checked them carefully, and
posted or emailed them out, placing copies into her organised filing system.
Sometimes, a customer would phone in and order parts only.
Mary would arrange for the parts to be delivered to the customer with a delivery docket.
A few days later, she would prepare the sales invoice and email it to the customer.
At the end of the month, if any customers still owed money, she would send a statement of account to them.
Mary kept a sharp eye on customer payments because she wanted to be sure to maintain efficient accounts receivable procedures...
...unfortunately, not every customer paid on time but Mary had a print out of accounts receivable collection tips which gave her some good pointers on how to go about the not so pleasant task of chasing down the money.
They were well on their way to getting a good grip on bookkeeping basics.
Bills and Expenses
did not use the bank card to buy everything he needed to complete his
jobs, neither did Mary when buying supplies for the office.
They opened a
few trading accounts with vendors and suppliers and would add purchases to those accounts through the month which they only had to pay at the end of the month.
meant that Mary had to understand Accounts Payable Procedures so they didn’t fall behind on payments and have their trading accounts suspended or closed.
They also kept handy some small change for feeding to parking meters when they had to visit town, or for posting a letter when their stash of stamps ran out.
Mary got some cash from the bank, placed it in a locking cash box and set up a petty cash log.
Reconciling the Bank Account
At the end of the month
they received a bank statement showing all transactions for that month.
To ensure the bank account and cash book matched each other Mary
performed a bank statement reconciliation...
and from this she discovered that Tom was having a few too many coffee
breaks at the local café which she was going to have to talk to him
The software that Mary used produced some interesting financial reports such as the Income Statement and Balance Sheet and she learned how to read them so that she could explain to Tom how their small business was doing and they could discuss if they had to change any systems to improve cash flow.
End of Year Bookkeeping
At the end of the financial year, Mary was able to do these important year-end checks to get her bookkeeping system as complete as possible for the whole year before their Accountant prepared their financial statements and income tax calculations.
The End of Bookkeeping Basics....?
The above systems are all essential to bookkeeping basics, but are not limited to these few.
It wasn’t long before Tom was so busy that he had to employ an assistant, so Mary had to set up a payroll system.
It was just the beginning of a whole new way of life.... and they couldn’t have made it this far without practicing excellent bookkeeping basics!
If you're the type of person who loves doing courses to learn more, have a look through these free online Bookkeeping courses, or you could try this Udemy course - Bookkeeping Basics: Understand the Fundamentals.
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