Bookkeeping and Accounting for Your Business in 3 Steps

Does the thought of keeping accounts scare you? Does your mind boggle at the mere thought of the records you need to keep? Are you worried the IRS will penalize you for not maintaining your accounts properly? Have no fear! We've charted a three step process that will simplify bookkeeping and accounting for your business. Follow these steps and you won't have to worry about it anymore.

There are two important reasons for maintaining financial records:
o To keep track of the business' income and expenses
o To collect the financial information necessary for filing tax returns

The activity of keeping books is a three step process. By following them, you can easily manage bookkeeping and accounting for your business:

1. Keeping bills and receipts - You must have a record for each and every business transaction that your company is involved in. These records should contain the amount, the date, and other details about that sale or purchase. While you need to store original cash bills in physical form, pretty much all businesses maintain a computerized system of accounts as well. Choose a system that fits your business needs.

2. Summarizing income and expenditure records - Maintain a summary of revenue and expenditure, organized by category and date. Enter it in a ledger, preferably on a computer. The more sales you make, the more often you should post to your ledger. For example, a busy retail store may need to do this on a daily basis. A slower business with just a few large transactions per month, such as a day care center or dog-sitting service can do this weekly or even monthly. To simplify this process, you can use an accounting software program that will generate ledgers and other necessary financial reports from the basic information that you have entered. Whatever you choose, remember that the cornerstone of bookkeeping and accounting for your business is regularity and completeness.

3. Creating Financial Reports - Financial reports bring together key pieces of financial information about your business. The reports you will need to create regularly are a cash flow analysis, a profit and loss forecast and a balance sheet. This will give you a better understanding of where your business is headed and whether it is making the kind of profit that it is capable of. In short, these statements give you the big picture of your business - do you have adequate cash flowing through your company to pay bills on time, are you able to stick to your planned budget and do you need to revise your earnings estimate? At the end of the year, you will have a clearer understanding of your business' income-making potential and be able to plan ahead for the future. While there is no denying the importance of careful bookkeeping and accounting for your business, it need not be the stuff of nightmares.

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