Imagine a boat without any compass, you may know you are going, but not where you are going. Bookkeeping is just like a compass for a business, without it you will not be able to know the way your business is performing. You will not be able to know if you are making a profit or incurring a loss. So eventually your business will lost track, just like the boat without a compass.
But luckily you are just at the right place to prevent your business from falling apart. This blog covers the basics of bookkeeping for an absolute beginner.
What is Bookkeeping?
Bookkeeping is the process of keeping track of all the financial transactions of a company. Each transaction will be recorded under different categories. Each record will also need supporting documents to verify that transaction.
Moreover, it can be done with spreadsheet software or designated accounting software for more convenience. You can also do bookkeeping manually, which is albeit more time consuming and appropriate for a company with a very little financial transaction.
There are also different methods to do bookkeeping. Single-entry bookkeeping, which is suitable for small businesses, and double-entry bookkeeping is more appropriate for medium to large-scale businesses.
Importance of Keeping Record
Whether you have a small business with a couple of employees or a billion-dollar company with thousands of transactions every day, bookkeeping is an essential part of the business.
Without keeping a record, it is potentially impossible to track if your business is doing good or not. You’ll also have a hard time calculating the tax to be paid.
Moreover, it keeps track of all our transactions, so you know where every penny is going, and what are the incoming sources. Which is quite impossible to remember by yourself.
Basic Terms of Bookkeeping
Before you start bookkeeping by yourself, you need to get a hold of some basic accounting terms. These will help you understand the ins and outs of it much easier. Below are some of the most important terms that you will find often.
- Asset – Any valuable thing for a business is called an asset. This can be your equipment, furniture, and even your account receivable.
- Liabilities – Liabilities are what your business owes. It includes your account payable, or things like your bank loan.
- Revenue – Total income generated from your business.
- Expense – The money spent on the business.
- Profit – Total income made from a business deducting the expenses.
- Debit – Increase in asset or expense accounts.
- Credit – Increases liability, revenue, or equity accounts.
- Balance sheet – A sheet that shows the assets, liabilities, and equity of a business. You can know the condition of a business with this statement.
Types of Bookkeeping
Small and big organizations do bookkeeping in different ways. There are basically two types of it that we use –
Each type of it has its own method to help you keep track of your transaction and profit/loss. Below is a brief idea of how these two types of record-keeping work.
The single-entry method is very straightforward and easy. All you need to do is record your Revenue and Expenses in two different columns.
Anyone can do keep records with this easy method. Below is an example of it.
See how easy it is. Because of its easiness, small businesses with less financial transactions tend to use this method for keeping records.
Unlike single-entry, the double-entry method is a bit more complicated. You have to enter a single transaction on both sides. For example, if you buy a laptop for your office, the amount will be debited from your account.
However, the same amount will also be credited on accounts payable on the credit side.
Because you need to enter every data two times, this method is called double-entry bookkeeping. It is mostly used in big organizations that have a large number of financial transactions.
Below is an example of it.
How to Manage It
There are several ways of managing bookkeeping. Depending on your business’s budget and expertise, you can choose any of the methods. The following are the three major ways of managing the record-keeping of your company.
DIY Bookkeeping using Spreadsheet
One of the easiest methods to manage bookkeeping is through spreadsheets. You can do it all by yourself. Unless you have to deal with a lot of financial transactions every day, good old spreadsheets will do the work just fine.
You can make the process even easier by using the single-entry method of it. To do a DIY single-entry record-keeping method using spreadsheets.
To do this, list all your revenue in a column and expenses in the next column and make a sum of both in the row below.
This way, you can easily get to know your profit/loss at any given time or check any of your financial transaction with details.
Outsourcing Your Bookkeeping
Another way to do bookkeeping is not managing it internally. This way is of course expensive, as you’ll have to hire an external accounting firm to do it for you.
When you feel like keeping records is taking up a big chunk of your time, you might want to try outsourcing them. You should also opt for taking help from an outsider when you think your financial transactions are increasing. You will also need expert help if you need to take loans from a bank.
Using a Bookkeeping Software
Using a bookkeeping method is the most efficient way of managing your finances. Not only it is the easiest way of doing it, but it is also the most cost-saving one.
Moreover, its software will help make your expenses and earning categorized, so you’ll have easy access to trial balance, journal & ledger report, balance sheets, income statement & other aspects of accounting.
Considering the cost and ROI, this software is an easy way of managing the bookkeeping of a company.
WP ERP Accounting Module – An Easy Way to Bookkeeping
And bookkeeping software is built in a way so that you don’t have a hard time managing the financials of your company. WP ERP Accounting Module is built in a way that you don’t even have to be an accountant to manage your bookkeeping.
It is web-based and powered by WordPress, so you can access the information and update them from anywhere. It makes the following things very easy –
- Invoice & receiving payments.
- Creating an estimated invoice.
- Implementing tax rates.
- Calculating expenses & bills.
- Managing purchase order or purchase voucher.
- Creating an advanced journal & ledger.
- Create customers & vendors & more.
Here’s how you can prepare your Journal and Ledger Reports –
Apart from that, you will be able to buy and integrate a plethora of extensions for the WP ERP Accounting Module that will make an accountant out of your non-accountant self! WP ERP Accounting extensions include –
- Payment Gateway.
- WooCommerce integration.
Here’s a video tutorial on how to create tax in WP ERP –
While offering so many options to manage your bookkeeping, WP ERP Accounting is surprisingly easy to use. WP ERP also has a superb support team that will help you with any problem that you might face while using this tool.
Start Bookkeeping By Yourself Today!
As you can see from the above guide, bookkeeping is extremely easy, and believe it or not, if you have a small business you can do it all by yourself.
You can choose any of the methods that we talked about depending on your budget and you’ll notice the positive impact of it on your business from day one. So hopefully after reading this guide you are all set to start your bookkeeping today.