The actual process of keeping books is easy to understand when broken down into steps:
1. Keep receipts and or other acceptable records of every payment and expenditure from your business.
2. Summarize your income and expenditure records on a periodic basis (generally daily, weekly, or monthly).
3. Use summaries to create financial reports that will provide specific information about the business. For example, how much monthly profit is the business making or how much the business is worth?
Bookkeeping and accounting functions of a business share two basic goals:
1. To keep track of income and expenses improving chances of making a profit.
2. To collect the necessary financial information about the business to file various tax returns.
Remind yourself of these goals whenever feeling overwhelmed by the details of keeping financial records.
Be reassured that there is no requirement that records are kept in any particular way. In other words, there is no official “right” way to organize the books. As long as the records accurately reflect business income and expenses the IRS will find them acceptable. Whether you do your accounting by hand, on ledger sheets or use accounting software, these principles are exactly the same.
Summaries of business income and expenses are the heart of the accounting process. Remember that each business sale and purchase must be backed by some type of record containing the amount, the date, and other relevant information about the sale or purchase.
From a legal point of view, the method of keeping receipts can range from slips kept in a box to a sophisticated cash register hooked into a computer system. You will, of course, want to choose a system that fits your business needs.
For more information on how to get set up and ready to roll, call us today at 540.309.5165. We offer an hour free consultation!