Small business tips: the basics of bookkeeping

Good bookkeeping practices are essential to keeping your business running smoothly.

Regardless of the size of your company, good bookkeeping practices are essential to keeping your business running smoothly. Accurately kept books do more than make it easy to file your annual tax returns. Banks may require you to submit a profit and loss statement or balance sheet
so they can determine your credit-worthiness. A quick review of your books can show where you need to spend more or less money; who gives you the most business and who takes the longest to pay you; how much you're paying out in commissions compared to how much you're selling.

Here are some general terms that are helpful to know.

ASSETS are things that you own or are owed to you: bank accounts, inventory, loans made to other companies or individuals, company cars, etc.

LIABILITIES are things that you owe: loans, accounts payable, payroll taxes, etc.

EQUITY is net income (sales less expenses), capital stock, and owners/officers distributions.

EXPENSES are things you pay for: business meals, gas for company cars, professional services
, postage, etc.

REVENUE is money you earn from the sale of services or product, or from interest earned on a bank account, investment, or a lease or loan of your equipment or property.

COST OF SALES is any expense directly related to earning revenue: product purchases, freight or delivery, sales tax expense, etc.

One of the most valuable resources you can have for a small business is a public accountant. Even if you only take your books in at tax time, having someone to give you specific advice and answer your bookkeeping questions is important. Find an accountant whom you like and trust. If you're having difficulty finding one on your own, talk to other people with similar businesses for recommendations.

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