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day to day bookkeeping

Here are the essential processes for day to day bookkeeping beginning with the very first things you should do to get started and then moving on to the daily steps to keep you going.

Start quickly with confidence and continue to keep a good record of your business money.

Day to Day Bookkeeping

day to day bookkeeping essentials

If today were your first day ever of “keeping books” for your small business, where should you begin - what would be essential?

Get Bookkeeping Software or a Notebook: The most essential thing for your bookkeeping is to have somewhere you can record all the movement of your business money, using designer software or spread-sheeting software like Microsoft Excel or a lined bookkeeping notebook or even a piece of paper.

Open A Bank Account: The next essential thing is to open at least one bank account to start with just for your business money (if you haven't done so already) so you can keep it separate from your personal money. More on this down below.

Setup a Sales Invoice Template: The third essential thing is to design and prepare a sales invoice template so you can invoice your customers - however this may not apply to you if your type of business doesn't have to issue invoices. Your software will have a basic template ready to be personalized with your colors and logo. Or, you can use Excel sales invoice templates, or find a printable template online, or an invoice book from your local store.

Keep a regular record: Then the next essential thing is to record, in your book/paper or software:

  • what you are spending your money on for the business (expenses - or money-out), and 
  • where you are receiving money from (income - or money-in).

Here is a free day to day bookkeeping template in Excel

Each day you swipe or tap your bank card at a shop, or issue a check, or dole out the cash or set up an online payment, say to yourself "I have to record this in my books".

Each day you receive a bank payment, a check, online payment or cash, say to yourself "I have to record this in my books". 

These payments received or paid out are called transactions.

Your day to day bookkeeping records are all based on the transactions.

It is also essential to know that not every expense will be a deductible expense (in other words an expense that can be deducted from your income to reduce how much tax you pay).

More on bank accounts for business

All good bookkeepers will tell you to keep your business money and your personal money separate. 

If you haven't opened a bank account just for your business money yet, make it a priority.

Don't worry if you've already mixed up your business expenses with your personal money - there are ways to split them out (see Tip #3 here)

When it comes to spending money for your business try to stick with only spending from the business bank account.

If you have to use personal money because your business bank is low on funds, transfer a bulk amount over to the business bank account so you can continue paying for business expenses from the bank account for the business.

The transfer over can be recorded in the books as a Personal Deposit (Capital / Funds Introduced). This makes the bookkeeping less complicated.

And if a customer pays you cash make it a priority to deposit the cash to the business bank account as soon as possible so that you don't lose the cash or risk spending it and then forgetting what you spent it on.

setting up your day to day bookkeeping records

Whether you decide to use a software or paper for your day to day bookkeeping, you have to initially setup the following:

when using software or a spreadsheet/notebook

  • enter in your business name
  • name your bank account/s - for advanced software link your bank account/s to the software - these accounts may include your main bank account, a savings account, Paypal or Stripe, and Credit Cards. It is best to only include accounts that are specific to your business. If you link personal accounts you will have to waste time recording all your personal income or expenses to an equity account which is a waste of precious time.
  • select your financial year period and business start date
  • name your income and expense account categories - most software or designer spreadsheets will come with pre-loaded account names or will suggest names to you.
  • if you have opening bank balances follow the software's instructions to enter them because it will help you reconcile your bank account with accuracy.

when using a bookkeeping notebook or paper

  • you need to draw up some columns for your income and expenses and name them
  • if you have several bank type accounts, prepare one page per bank account
  • that's about it!

At the very, very minimalist least you need one income account and one expense account for your day to day bookkeeping, but I recommend expanding onto several expense account columns (as displayed on this page) so you can group your different types of expenses into different account categories for better monitoring of your expenditure habits. 

how the day to day bookkeeping happens

You sell a product or service to customers. 

The customers pay you money.

You spend the money on things your business requires to operate.

You keep the matching paperwork in an easy to access place (like in a box or your handbag or scanned/saved to a computerized folder).

You record those transactions into your books.

The organized way to record each transaction is in date order.

Then each transaction has to be allocated to an account category (either an income or an expense).

The details for each day to day bookkeeping transaction should include:

  • the date
  • the amount
  • the name of vendor or customer
  • the account category
  • keep the receipt or bill or invoice in your files to support the transaction - this is the paperwork. I have written here how to keep a good filing system.

Transactions for each income and expense account category are summarized.

The summary is called an Income Statement or a Profit and Loss Report, depending on the country you're in, but both are laid out in the same order. 

This income and expense summary is most popularly prepared once a month.

If you have very few transactions you can do the recording once a month but if you have a lot of transactions then once a week is good to avoid a once-a-month-overload. 

Select an option that works for you for recording your transactions:

  • every morning for the day before
  • once a week for the week before
  • once a month for the month before
  • I wouldn't leave it any longer than that.

Not every transaction will be an income or expense - in normal bookkeeping, these go to balance sheet type accounts. If your record does not have a balance sheet, make sure to remove the totals of those types of transactions from the profit and loss summary result.

But it also depends on if you have online access to your bank or if you have to wait for a statement from the bank.

You don't have to wait for the information from the bank - you can enter your daily transactions into your bookkeeping record based off your receipts, invoices, bills, checks or your memory, and then match it to the bank statement when that arrives. 

But I think you'll find it a lot easier to use transaction listings or wait for the bank statement to tackle this process.

example of a day to day bookkeeping update

Using a weekly update for this example.

So your first week of business has gone by and you now have some transactions to enter into your records.

Login to your bank and view the previous week's transactions on-screen or print them out.  This could be for Monday to Friday, or Wednesday to Tuesday - any 7 day cycle.

Work your way down the printed list entering each transaction in date order into your bookkeeping record.* 

Look to your paperwork when necessary for relevant details such as the type of expense (because your bank statement won't say unless you remember from the name of the vendor/supplier what it was for). 

Analyze the transaction to help you figure out what expense account category to allocate it to.

Once it is entered, if you like you can stamp your paperwork with an "Entered" stamp or a tick or something similar, or for online paperwork when using a PDF reader you can make a mark of some sort. This isn't mandatory but it might help you be more organized. 

File the paperwork away.

Once all transactions for the week are entered, check if the bank balance in your records matches the bank balance at the bank (this is where bank reconciliations come in). 

*If you are using bookkeeping software to issue sales invoices to your customers, make sure that when you enter customer payments you apply them to the invoices. Don't enter the payments straight against your income account category otherwise you will be left with unpaid invoices in your system and you will have doubled up on the income amounts (sales invoices already allocate the amount to income).  

If the bank balance is different it means you may have left something out of your records or you may have too many transactions in the cash book. The reconciliation page tells you more about this.

Finally, prepare and analyze your income and expense summary.

what if you have expenses from prior to your start date?

There are three things to consider:

  1. What is the official starting date of your business?
    Did the expenses happen before your official starting date?
    Some expenses may be classified as "start-up" expenses. 
  2. Was this money spent from your personal money like credit cards or personal bank account?
    If using software, they may provide you an option to enter these into the records as "start-up" expenses, or you can enter them with a journal - all on the first day of your start date. In a book or on paper, just write them in on the first day of your records.
  3. Was this money spent from your business bank account that you already had opened? 
    Consider back-dating your official starting date or your bookkeeping record to the date of your first transaction at the bank and enter all those transactions into your records in date order. So basically doing a catch-up of your bookkeeping.   But don't do this if those expenses fall into a prior financial year.

The starting date and start-up costs can be a bit of a gray-area. If you have a lot of those types of payments I recommend getting some advice from your accountant on how best to handle it in your books.

why day to day bookkeeping is important

You may be asking yourself why you are having to do this and where it's all going.

One reason why is that the government tax department wants to charge you income tax. They calculate it on the result of your total income minus your total expenses for the year.

Another reason why is that, as a good business owner, you should know if your business is making or losing money. If it's losing money then you can strategize ways of increasing sales or reducing expenses.

summary

  1. Open a bank account for the business.
  2. Decide what to use for your bookkeeping record.
  3. Set-up/prepare your bookkeeping record.
  4. Enter your daily transactions.
  5. Reconcile the record with the bank.
  6. Analyze the income and expense summary.

If you do these day to day bookkeeping essentials consistently to start with it will be easy for you to expand to other bookkeeping features like using cost of goods sold accounts, keeping a balance sheet, maintaining petty cash, tracking accounts payable and managing inventory records, and a whole lot more.

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