Bookkeeping is an integral part to the success of any business, big or small, new or old. Increasing your knowledge about bookkeeping will help you keep your business on track and your financial statements in order. We, here at Marlandale understand the importance of bookkeeping and want to pass our knowledge on this important topic on to entrepreneurs everywhere.
Bookkeeping: Accounts Payable and Accounts Receivable
There are many different aspects to bookkeeping. Accounts payable and accounts receivable are two very important aspects that help you track the bills and money owed for your business. Accounts payable is the term used to refer to the bills and accounts that your business owes on. For each bill that your company pays, you should have an accounts payable ledger that keeps track of the money your business has paid out for that account. Your accounts payable ledger will help provide you with detailed information on where your company’s money is going each month. This can be helpful when it comes time to reconcile financial statements as well as seeing where your company may be able to save money.
Accounts receivable is similar to accounts payable, but in reverse. This means that your accounts receivable leger tracks all money that is owed to your company. Most often this is used for sales that have been made on credit, where the money hasn’t been collected yet. Each time you write an invoice illustrating a sale, you should also create an entry in your accounts receivable ledger to track the amount owed to your business. When a payment is made then it should be entered into the ledger for that account to accurately reflect the income made to date on that sale.
Bookkeeping Financial Statements
There are a number of bookkeeping financial statements that help give you a big picture of where your company stands financially. These documents can typically be glanced at and summarize the income and expenditures of your other bookkeeping documents.
A balance sheet is a report that allows you to see the financial statement of your business on any particular date. It reflects the value of the company assets as well as the liabilities and equity. A balance sheet also reflects the value of your assets including property, equipment, and furniture. You’ll also be able to easily distinguish between different liabilities such as loans and other debt, including accounts payable.
A chart of accounts is one of the most important documents that you’ll use for your bookkeeping. A chart of accounts is similar to a filling cabinet. Each file stores a different type of important information. For example, you may have a file (or account) labeled as telephone expenses. This is where you will track all information regarding payments for this expense. It’s common to have an account for each expense. This provides you with the best resource to quickly locate important information about each expense. Many companies choose to also use a chart of accounts to keep track of their accounts receivable information. This allows them to quickly reference and locate the important information regarding each account that owes your company money along with their contact information and balance of the account.
Another very important aspect of bookkeeping is the profit and loss statement. The profit and loss statement provides a general outlook on how well your business is doing. It also can help you find ways to save money for your company. The profit and loss statement also allows you to compare the previous year’s income and expenses with the current year’s income and expenses. If you have plans to seek out a loan from a bank, then you’ll want to be able to provide them with your profit and loss statement to show if your business is profitable or not. This will help your standing with the bank and help them decide not only how much money they’re willing to offer you but also with what interest rates they’re comfortable loaning the money to you.
The Importance of Bookkeeping
Excellent bookkeeping can help your business become successful. You put a lot of hard work and dedication into running your business and servicing your customers. The last thing you want to do is find yourself in a situation that could have very easily been avoided had you employed the use of good bookkeeping skills.
If you are unsure on how to practice good bookkeeping or if you don’t have the time to devote to the work, then you may want to consider hiring an outside source to take care of your company’s bookkeeping needs. It’s far better to have an experienced company or individual handle the processes of keeping track of your company’s financial documents than to struggle with them yourself.
If you have any questions about bookkeeping, please contact Marlandale at (972) 478-4346.