| Bookkeeping and accounting share two basic goals: | | | | summary of revenues, expenditures, and whatever |
| - to keep track of your income and expenses, thereby | | | | else you're keeping track of (entered from your |
| improving your chances of making a profit | | | | receipts according to category and date). Later, you'll |
| - to collect the necessary financial information about | | | | use these summaries to answer specific financial |
| your business to file your various tax returns and local | | | | questions about your business such as whether you're |
| tax registration papers | | | | making a profit, and if so, how much. |
| Sounds pretty simple, doesn't it? And it can be, | | | | You'll start with a blank ledger page (a sheet with lines) |
| especially if you remind yourself of these two goals | | | | or, more often these days, a computer file of empty |
| whenever you feel overwhelmed by the details of | | | | rows and columns. On some regular basis like every |
| keeping your financial records. Hopefully you will also | | | | day, once a week, or at least once a month, you |
| be reassured to know that there is no requirement | | | | should transfer the amounts from your receipts for |
| that your records be kept in any particular way. (There | | | | sales and purchases into your ledger. Called "posting," |
| is a requirement, however, that some businesses use | | | | how often you do this depends on how many sales |
| a certain method of crediting their accounts. See " | | | | and expenditures your business makes and how |
| Peak Virtual Accounting") In other words, there's no | | | | detailed you want your books to be. |
| official "right" way to organize your books. As long as | | | | Generally speaking, the more sales you do, the more |
| your records accurately reflect your business's income | | | | often you should post to your ledger. A retail store, for |
| and expenses, the IRS will find them acceptable. | | | | instance, that does hundreds of sales amounting to |
| The actual process of keeping your books is easy to | | | | thousands or tens of thousands of dollars every day |
| understand when broken down into three steps. | | | | should probably post daily. With that volume of sales, |
| 1. Keep receipts or other acceptable records of every | | | | it's important to see what's happening every day and |
| payment to and every expenditure from your | | | | not to fall behind with the paperwork. To do this, the |
| business. | | | | busy retailer should use a cash register that totals and |
| 2. Summarize your income and expenditure records on | | | | posts the day's sales to a computerized bookkeeping |
| some periodic basis (generally daily, weekly, or | | | | system at the push of a button. A slower business, |
| monthly). | | | | however, or one with just a few large transactions per |
| 3. Use your summaries to create financial reports that | | | | month, such as a small Web site design shop, |
| will tell you specific information about your business, | | | | dog-sitting service, or swimming pool repair company, |
| such as how much monthly profit you're making or | | | | would probably be fine if it posted weekly or even |
| how much your business is worth at a specific point in | | | | monthly. |
| time. | | | | To get started on a hand-entry system, get ledger |
| Whether you do your accounting by hand on ledger | | | | pads from any office supply store. Alternatively, you |
| sheets or use accounting software, these principles | | | | can purchase an accounting software program that |
| are exactly the same. | | | | will generate its own ledgers as you enter your |
| Step 1: Keeping Your Receipts | | | | information. All but the tiniest new businesses are well |
| Comprehensive summaries of your business's income | | | | advised to use an accounting software package to |
| and expenses are the heart of the accounting | | | | help keep their books (and micro-businesses can get |
| process. But they can't legally be created in a vacuum. | | | | by with personal finance software such as Quicken). |
| Each of your business's sales and purchases must be | | | | That's because once you've entered your daily, |
| backed by some type of record containing the | | | | weekly, or monthly numbers, accounting software |
| amount, the date, and other relevant information about | | | | makes preparing monthly and yearly financial reports |
| that sale. This is true whether your accounting is done | | | | incredibly easy. |
| by computer or on hand-posted ledgers. | | | | Step 3: Creating Basic Financial Reports |
| From a legal point of view, your method of keeping | | | | Financial reports are important because they bring |
| receipts can range from slips kept in a cigar box to a | | | | together several key pieces of financial information |
| sophisticated cash register hooked into a computer | | | | about your business. Think of it this way -- while your |
| system. Practically, you'll want to choose a system | | | | income ledger may tell you that your business brought |
| that fits your business needs. For example, a small | | | | in a lot of money during the year, you may have no |
| service business that handles only relatively few jobs | | | | way of knowing whether you turned a profit without |
| may get by with a bare-bones approach. But the more | | | | measuring your income against your total expenses. |
| sales and expenditures your business makes, the | | | | And even comparing your monthly totals of income |
| better your receipt filing system needs to be. The | | | | and expenses won't tell you whether your credit |
| bottom line is to choose or adapt one to suit your | | | | customers are paying fast enough to keep adequate |
| needs. | | | | cash flowing through your business to pay your bills on |
| Step 2: Setting Up and Posting Ledgers | | | | time. That's why you need financial reports: to combine |
| | | | data from your ledgers and sculpt it into a shape that |
| A completed ledger is really nothing more than a | | | | shows you the big picture of your business. |