A beginner’s guide to bookkeeping

When you start to build a house, you need a solid foundation first. The same goes for building a successful business. Think of bookkeeping as that sturdy base. It’s not just about recording business transactions. It’s about making sure your company is strong enough to weather any financial storm.

By logging your income and expenses day in and day out, you create a record of your company’s financial history that you can turn to whenever you have a question about your financial position. Plus, detailed records make it easier to get ready for tax time — and easier to impress potential investors, too.

Read on for more info on what bookkeeping involves and how to set up a system that works for you.

Key terms

If you want to be a competent bookkeeper — or you want to be able to carry on a conversation with an outside expert that you plan to hire — then it helps to know the lingo associated with the profession. Here are some key terms to learn:

• Accounting equation: The basis for constructing a balance sheet: Assets = Liabilities + Equity

• Accounts payable: The money you currently owe vendors or suppliers

• Accounts receivable: The money you haven’t received yet from customers for your product or service

• Accrual basis and cash basis: Two of the most common accounting methods used by business owners

• Assets: Any resource that a business owns or controls and that yields economic value

• Balance sheet: A financial report listing your business’s assets, liabilities and equity

• Cash flow:The money going in and out of your business

• Chart of accounts: An index of every type of transaction for a given company

• General ledger: A complete record of a business’s financial transactions over time

• Income statement: A financial report listing what you’ve earned and what you’ve spent in a set period (also known as a profit and loss statement, or P&L)

• Liabilities: Any items you owe, such as unpaid invoices, credit card balances and business loans

Types of bookkeeping

There are two main methods for bookkeeping:

• Single-entry: The bookkeeper uses one journal entry for each transaction — both income and expenses — so that they can record everything in one location.

• Double-entry: Income and expenses are recorded separately as credits and debits, and each side must match the other. This method requires more documentation and attention to detail.

A lot of smaller business owners prefer the simplicity of the single-entry method. Businesses with more complicated transactions, on the other hand, may appreciate the nuance of the double-entry system.

What a bookkeeper does

The following tasks are generally associated with bookkeeping:

• Data entry: Keeping records using either the single-entry or double-entry accounting style mentioned above

• Bank reconciliation: Confirming that the books match their corresponding bank account statements

• Preparation of financial reports: Tracking finances over time and creating a log of changes

• Review of money coming in and out: Managing accounts receivable, accounts payable and payroll; obtaining payment from invoices; making sure employees and vendors are getting paid

DIY bookkeeping tips

Not a trained accountant? That’s fine. Bookkeeping doesn’t require formal training, and if you don’t want to hire an outside expert, you can usually do it on your own. Just keep the following tips in mind:

• Create a filing system: Keep records of all your expenses, like receipts, and create a system to track both expenses and income. Don’t forget to track outstanding invoices, too.

• Keep personal and business finances separate: Open a bank account for business expenses so that you don’t mix personal and professional transactions.

• Put your tech to work: Do some research into the various small business bookkeeping software options available, and consider using automation and tracking software, too.

• Stay on top of your finances: Consider completing regular financial reviews, including quarterly and monthly.

• Keep an eye on tax deadlines: Keep your records in a convenient location, and start filling out your return several weeks before it’s due so that you have time to troubleshoot, if needed. Alternatively, look into hiring a professional accountant to help you file.

Frequently asked questions

How does bookkeeping differ from accounting?

Bookkeeping and accounting are similar, but not the same. Think of them this way: Bookkeeping is a record of business savings and transactions. Accounting is a method of interpreting, classifying and analyzing financial information. Bookkeeping is one of the key components of any accounting system, but it’s not the only one.

Should I be using online bookkeeping tools?

You can balance your books without any digital tools, but the process can be much simpler when you take advantage of what’s available online. If you want to start small, look for a free budget template (PDF) that will help you keep track of monthly expenses. Then once you’ve gotten comfortable with the basics, you can download a budget planning app or bookkeeping software for more detailed, personalized guidance.

Should I do my own bookkeeping?

It’s certainly possible for business owners to do their own bookkeeping. However, ask yourself whether you have enough time and patience to tackle it yourself. You may decide that you’d be better off hiring an outside expert so that you can focus on other aspects of running your business.

Who can I turn to for extra help?

If you have more questions about your business’s bookkeeping or accounting needs, reach out to a Chase business banker.