Thousands of business owners excel at creating great products, services, enhancing customer experience, and changing the traditional approach to shopping. However, many of them would flunk bookkeeping basics, which are quite significant for the success of any business. If you, the owner, do not understand how your bookkeeper is organizing all the finances, you cannot measure your business’s success or failure. No matter how impressive, marketing efforts will be futile if you do not consider the costs of running such campaigns and whether they are profitable for the future growth of the business.
Keeping a close tab on accounts receivables, paying bills, accounting for petty cash, and other small details of your business can prove vital for the future. Understanding how cash flow affects the daily operations and making sense of your financial statements are some bookkeeping basics that a business owner should follow. Here are some other vital aspects of your business that must get attention.
Cash
Cash is the most necessary item in your business, and keeping track of cash flows will make or break the business. All the transactions of your business will pass through a cash account. Bookkeepers must keep a check on everything that comes in and goes out, which requires them to keep two journals; cash receipts and cash disbursements.
Accounts receivables
Bookkeeping basics require every business to track its accounts receivables. Other than retailers, who collect immediate cash upon selling, many companies work on credit, which would result in the generation of accounts receivables. Everything owed to you is in the accounts receivables. Businesses often decide upon a specific time limit to make the payments; however, that is not always the case. In case the payments are delayed, you should take immediate action, which is only possible if the receivables are tracking efficiently. Sending timely invoices to your clients with transparent terms and conditions is one of the bookkeeping basics that a business must use.
Inventory
Your inventory is the bread and butter for your company. Keeping account of your inventory needs and managing it is an essential task of a bookkeeper. There are many different ways used by businesses to account for inventory, with first in first out (FIFO) and last in first out (LIFO) being the ones most widely used. Whether you account for inventory with FIFO or LIFO, whatever method you choose will have a significant effect on taxes. Therefore, it is crucial to understand the procedure involved in its tracking. Doing so will ensure that you select the best mode of recording for the business.
Bookkeeping basics for accounts payable
Nobody likes money going out of the business; however, it is vital to keep track of your payables. In the long run, this practice can come in handy for you, as you would have a clear picture of your liabilities. Knowing these liabilities ensures that you do not make rash decisions at wrong times and are aware of your external obligations. Paying the money in time also helps you get discounts as people prefer to receive on spot payments rather than marking it as receivables. It is among bookkeeping basics to ensure the timely delivery of your accounts payables.
Payroll expenses
Being a business owner, you would know that payroll expenses are among the highest costs every month. Apart from knowing how much you are spending on maintaining the current workforce, certain tax obligations make it mandatory to track these expenses with the utmost care. Payroll taxes are the amount you keep with yourself in place of your employees but have to be paid back to the IRS at the time of filing. Not being able to account for your payroll taxes can land you in serious trouble with the government and, in some cases, has resulted in bankruptcy.
Abiding by these bookkeeping basics will ensure that your business stays on course for success, and you are keeping close tabs on all that matters.
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