Here are 12 areas of your business you can automate today. Double-entry is more complex, but also more robust, and more suitable for established businesses that are past the hobby stage. The more information you can give your CPA at tax time, the more deductions you’ll be able to legitimately claim, and the bigger your tax return will be.

All these accounts may sound too much to handle in the beginning. However, once you get the hang of the bookkeeping, you will be able to effectively use the data from these accounts for informed business decisions. This happens when you sell products and services but do not collect money straight away.

How much should I pay an accountant for my small business?

This is also known as net assets and reflects the amount of the business owner’s money after subtracting any liabilities from the assets. Liabilities are essentially claims in which you owe lenders and other vendors. Any record of unsold products goes into your inventory account.

Having a dedicated person to do this for you can help if you believe you might procrastinate and then forget to do it completely. This account tracks the purchase of any raw materials and finished products for the business. This account is a crucial component when it comes to calculating the cost of goods sold . You just subtract the amount you paid to buy the raw material from the sales, and the remainder is your profit. The accounting equation means that everything the business owns is balanced against claims against the business . Liabilities are claims based on what you owe vendors and lenders.

Bookkeeping basics: The accounts you should know

You can also consult professional bookkeeping communities, accounting blogs or industry forums for available professionals. Records those invoices and bills even if the funds haven’t been exchanged. Generally, accrual-based is the recommended accounting method, but the decision is ultimately up to you. This method doesn’t record invoices or your company’s outstanding bills until they’ve actually been paid. The entry system you choose impacts how you manage your finances and how your bookkeeping processes will work. With the development of bookkeeping and accounting technology, bookkeeping tasks have become more automated. However, this doesn’t make it any less important to ensure you set everything up properly from the start.

Jesus Morales is an Enrolled Agent and has 7 years of bookkeeping and tax experience. Firms also have intangible assets such as customer goodwill that may be listed on the balance sheet. Expand your bookkeeping knowledge by brushing up on the most common bookkeeping errors . However, for the novice, the introduction of bookkeeping-specific vocabulary and the rules that govern proper bookkeeping processes can be overwhelming. The Purchases Account tracks any raw materials or finished goods that you buy for your business. It’s a key component of calculating “Cost of Goods Sold” , which you subtract from Sales to find your company’s gross profit.

Take the confusion out of bookkeeping

Anyone who has spent painful weekends preparing for their yearly tax appointment with their accountant can tell you, it’s not fun. Add transactions into your books regularly (e.g., once per week).

Embracing both incoming and outgoing capital, the information documented must be thorough, accurate, and up-to-date. After I graduated from college, my first job was a temp position bookkeeping for a small photographer’s management agency.