All businesses need to keep a record of their financial transactions in order to assess their financial health, provide status reports to various bodies and to comply with legal regulations. Use these steps as a guide to keeping your books well and truly up to date:

  1. Transactions: The purchases or sales of items start the process of bookkeeping.

  2. Journal entries: Enter transactions into the books through journals.

  3. Posting: Post journal entries to the Nominal Ledger.

  4. Trial balance: Test accounts in the Nominal Ledger to see if they’re in balance.

  5. Worksheet: Enter on a worksheet any account adjustments needed after the trial balance.

  6. Adjusting journal entries: Post adjustments from the worksheet to affected accounts in the Nominal Ledger.

  7. Financial statements: Prepare the balance sheet and income statement using the corrected account balances.

  8. Ratios: Use ratios to cross check performance from one accounting period to another. Any major change could signal an error in record keeping if you can’t account for it by a known change in performance.

  9. Closing: Close the books for the revenue and expense accounts, and start the entire cycle again with zero balances in both accounts.