7 Basic Bookkeeping Tips for Startup Businesses

Small businesses depend on accurate records of financial transactions and must account for all of their money, or they may face legal consequences and damage their reputation.


To improve efficiency, obtain financing, maintain a consistent organisational structure, track expenses, and identify possible risks, startups must follow accounting standards. Whether you choose to hire a bookkeeper or rely on bookkeeping software, you should understand the basics of startup bookkeeping.


Here are the basics of bookkeeping you should know about:


1. Analysing Business Transactions


Bookkeeping is formally recording business transactions to keep the books balanced. Bookkeeping is often used interchangeably with accounting to mean the same thing. Businesses use bookkeeping to generate financial reports. These reports are used to create payments to employees, pay bills, settle tax obligations, and obtain financing.


2. Double Entry Bookkeeping


Double-entry bookkeeping is the most common style of bookkeeping. This method uses debits and credits, and each transaction requires a debit and a credit to balance the books. The debit and credit can be on the same side of the transaction or opposite sides. In both cases, the result is a balanced ledger. This lets accountants detect errors by comparing the entries to a previous balance.


3. Posting to Ledger Accounts


After you update financial data and create journal entries, you record the transactions in the journal to your general ledger accounts. When you move the data from the journal to the general ledger, you make your first posting. General ledger accounts are the beginning accounts for all of your entries and are used in the financial reports you produce.


4. Reconciling Bank Statements


You need to reconcile your bank account monthly to verify that your transactions are accurate. After you analyse your transactions, you enter data into the computer. Then you print a trial balance, which shows all of your accounts with balances and their totals. After comparing this summary to your bank statement, you make the necessary corrections and balances.


5. Writing Journal Entries


A journal is a book that contains debits, credits, and transfers of money or property. As you prepare your accounting records and other accounting activities, you always begin with data from the journal. You must use a double-entry method to record the transaction when you do certain transactions. This means you need to include debit and a credit for each transaction.


6. Trial Balances


A trial balance is a summary of the entries in your journal, showing the balances of your accounts in summary format. Trial balances do not include the transaction numbers, which are only used to identify the individual transactions. You can use trial balances to verify your computer entries and ensure that the balances in your general ledger are correct.


7. Closing Accounts


After the close of your fiscal year, you have to go through the accounts listed on your general ledger and close those accounts that have been inactive for some time. This is done to eliminate obsolete accounts and prevent errors. If you fail to close your accounts properly, you may have balances in your general ledger and incorrect net income.


Conclusion


Starting a business requires calculating and managing expenses, recording transactions, and producing financial reports. The bookkeeping department handles these activities. Bookkeeping is a vital part of accounting that you should understand and master.


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