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Here are some key concepts of bookkeeping:
- Double-entry accounting: The practice of recording each financial transaction in at least two different accounts to ensure accuracy and consistency.
- Debits and credits: The basic building blocks of double-entry accounting, where a debit is an entry on the left side of an account and a credit is an entry on the right side.
- Chart of accounts: A list of all the accounts used in an organization’s financial records, including assets, liabilities, and equity.
- Journal entries: The individual entries made in a journal to record financial transactions, which are later transferred to the general ledger.
- General ledger: A record of all the financial transactions that have taken place within an organization, organized by account.
- Financial statements: Reports that provide an overview of an organization’s financial performance, including the income statement, balance sheet, and statement of cash flows.
- Accrual vs cash basis accounting: Accrual basis accounting records transactions when they occur regardless of when cash is received or paid, while cash basis accounting records transactions only when cash is received or paid.
- Budgeting: The process of creating a financial plan for an organization, including projected income and expenses.
- Auditing: The process of reviewing and verifying an organization’s financial records to ensure accuracy and compliance with financial regulations.
Why Bookkeeping Matter?
- It helps you catch more tax deductions
- It can help you get a business loan
- It can helps you catch financial mistakes
- It gives you a clear picture of where your money is going
Steps to Follow
- Separate your business and personal expenses
- Choose between single entry or double entry accounting
- Choose between the cash vs accrual method of accounting
- Choose a bookkeeping system
- Categorize your transactions
- Organize and store your documents
- Make it a habit