If you are starting your own business, and want to know what documents to keep, how to file them, how to store them, what to do, how to keep on top of the paperwork... read on!
1. Understand the difference between bookkeeping and accounting. Accountants are trained qualified professionals who analyze accounts and write reports.
2. Define bookkeeping - Bookkeeping is not just filing all documents (such as invoices, bills, bank statements, Agreement forms, etc) together but it is about organizing into the specific categories like Assets, Liabilities, Capital, Expenses, Income, Drawings; with completeness. Completeness meaning having complete set of documents, for instance having all the cheque numbers in order with no missing cheques.
3. Understand the terms used. Here is the "accounting equation": Assets = Liabilities + Owner's Equity. Search on the Internet for Free accounting and bookkeeping tutorials, or for example check here: DWM Bean Counter
4. Sort all transactions down into: Income and Expenses.
- One form of expense is the "depreciation" of items purchased as capital assets, such as business equipment and real estate improvements (pavement, security lighting, buildings, etc.) -- but the cost itself is not an expense, but is an asset and assets are not deductible.
- Figure out ongoing expenses of taxes, payroll, etc.
5. Use software to help if you want. If you do use software, get appropriate software and know how to use it.
6. Keep books in one or the other single-entry bookkeeping which is similar to just categorizing every expense and income (This may be based upon doing all business income and pay-outs through a company or corporate checkbook/checking account, all separate from proprietor's or officers' personal expenses.). Or as, double-entry bookkeeping which has two places for each record so that totaling both debits and credits (adding or subtracting) to assets or to liabilities accounts. With various kinds of double entry transactions used as a check/balance of the accuracy of the books, for example separate all transactions by:
- Liabilities: "Payables" are bill invoices that your company needs to pay but havenot paid but are listed and totaled in a liability account, then when they are paid by your company an entry subtracting them from payables is done, and an entry shows from what asset account it was paid.
- Assets: Income and also "receivables" which are owed to your company, but arenot received as income yet but are listed and totaled in an asset account. Then when they are received an entry subtracting them from receivable assets is done, and an entry shows into what income account it is added.
- An example of double entry accounting of receivables includes recording them as assets until they are proved as "bad debts" (noncollectable) and then "written off" as a kind of expense.
7. Keep a record of each category for incomes and expenses from day one so sort and total:
- Invoices (receivables) billed to your customers - file in numerical order, most recent on top.
- Unpaid (payables) bills (File in folders by A-Z supplier name) and put the items within the account folders in order by date due (take discounts if some suppliers give a discount for paying within a certain number of days) -- place all unpaid supplier bills outstanding in this folder.
- Paid (expenses) bills (File A-Z by supplier name) -- place all paid bills in this folder.
- Bank statements - file in date order - most recent on top, keep credit card statements in this folder too.
- Petty Cash records of expenses - put receipts into an envelope, mark the envelope 'by month' and put the total amount of the receipts onto the envelope. Hole punch the envelope and file in Month order.
- Folder for items from the Inland/Internal Revenue - keep tax statements and correspondence and passwords here.
- Folder for state Sales Tax or VAT and correspondence from state Sales Tax or VAT office.
- Folder for Payroll items (if you employ people) -- tax forms for example.
- Box for "everything else" until it is sorted and categorized.
8. Keep all items in date order in a:
9. Someone has to determine profit or loss by comparing total income and expenses including some accounts which are for tax accounting.
Credit : http://www.wikihow.com/