What is bookkeeping?
Bookkeeping is the process of recording and organizing all of a business’s financial transactions. It includes tracking income, expenses, assets, liabilities, and equity to help ensure your financial records are accurate and up to date.
Why is bookkeeping important?
Bookkeeping helps you:
- Understand your business’s financial health
- Stay organized for tax time
- Make informed decisions using real numbers
- Comply with IRS and state regulations
- Track profitability and business growth over time
What’s the difference between bookkeeping and accounting?
Bookkeeping focuses on the day-to-day recording of financial transactions.
Accounting uses that information to interpret, classify, analyze, and report financial data, often through financial statements and tax preparation.
How often should bookkeeping be done?
Ideally, bookkeeping should be done weekly or monthly. Waiting too long can lead to missing transactions, confusion, or costly mistakes during tax season.
What does a bookkeeper do?
A bookkeeper typically:
- Records income and expenses
- Reconciles bank and credit card statements
- Categorizes transactions
- Maintains financial records
- Prepares basic financial reports (like profit & loss statements)
Do I need bookkeeping software?
Using bookkeeping software makes tracking transactions faster, more accurate, and easier to scale. For businesses looking to grow, it is highly recommended for businesses. If bookkeeping software is no in your budget to start, keep track of all records in a spreadsheet and ensure you keep ALL receipts.
Can I do my own bookkeeping?
Yes, you can do your own bookkeeping, BUT it depends on your comfort with numbers, the software you’re using, and how much time you can dedicate to it. DIY bookkeeping may be manageable for small, straightforward businesses. As your operations grow or become more complex, working with a professional can save time and help avoid costly mistakes. How transactions are categorized can directly impact your tax liability, so accuracy is essential. While it’s easy to put bookkeeping on the back burner, staying on top of it is critical for the long-term health and growth of your business. If you’re planning to grow or simply want peace of mind, it’s wise to make outsourcing your bookkeeping a priority in your budget as early as possible.
What do I need to keep track of for bookkeeping?
You should track:
- Sales/Income/Revenue
- Expenses (including receipts)
- Bank & Credit Card Transactions (and statements)
- Loans & Repayments
- Assets (like equipment or inventory)
- Payroll (if applicable)
What is the difference between cash and accrual bookkeeping?
Cash Basis:
Records income when received and expenses when paid.
Accrual Basis:
Records income when earned and expenses when incurred, regardless of when cash changes hands.
Most small businesses start with cash basis.
How do I prepare for tax time with good bookkeeping?
- Keep your books up to date monthly
- Reconcile all accounts
- Save copies (digital, paper or both) of all receipts and all statements
- Categorize all income and expenses correctly
- Work with a tax preparer early