Basic Bookkeeping for Your Small Business
2 of 11 in Series: The Essentials of Keeping Your Business Accounts
Bookkeeping refers mainly to the record-keeping aspects of accounting. Bookkeeping is essentially the accounting process (some would say the drudgery) of recording all the information regarding the transactions and financial activities of a business. What follows is a basic overview of what bookkeeping for a small business entails:
Prepare source documents for all transactions, operations, and other events of the business.
Source documents are the starting point in the bookkeeping process.
Determine and enter in source documents the financial effects of the transactions and other events of the business.
Transactions have financial effects that must be recorded — the business is better off, worse off, or at least different off, as the result of its transactions. The bookkeeping process begins by determining the relevant information about each transaction.
Make original entries of financial effects into journals and accounts, with appropriate references to source documents.
Using the source document(s) for every transaction, the bookkeeper makes the first, or original, entry into a journal and then into the business’s accounts. The journal entry records the whole transaction in one place; then each piece is recorded in the two or more accounts that are affected by the transaction.
Perform end-of-period procedures.
These procedures are the critical steps for getting the accounting records up-to-date and ready for the preparation of management accounting reports, tax returns, and financial statements.
Compile the adjusted trial balance.
This balance (a complete listing of all accounts) is the basis for preparing reports, tax returns and financial statements.
Close the books.
Bring the bookkeeping for the fiscal year just ended to a close and get things ready to begin the bookkeeping process for the coming fiscal year.