Bookkeeping – the recording, storing and retrieval of financial transactions – is a fundamental process of every business. It includes transactions such as billing, receipts, invoices, payments, payroll, as well as accounts receivable and financial reporting. At McLan Accounting Services LLC, we understand how important bookkeeping is to make basic yet critical decisions for your business. Having solid bookkeeping is about more than just tracking these transactions. Bookkeeping can help with auditing, enables you to reconcile your bank statements to internal accounts, and can provide valuable information that you can use for budgeting, forecasting, and financial planning. Depending upon the size of your business, your bookkeeper might work along with an accountant (who analyzes and reports the financial information,) and, a controller (who sets up and maintains the accounting system). Regardless of your exact situation, here are a few basic bookkeeping concepts you should be familiar with.
Debits and Credits
The first step in bookkeeping is deciding which system to use. If you have a small business with a low volume of financial transactions, then a single-entry system might be appropriate for your situation. This system records transactions as they occur – as cash moves in and out of your business. This system has limitations though, and can’t be used for things like inventory, accounts payable and accounts receivable. In contrast, a double-entry system makes two entries for each transaction: a debit and a credit. A debit in one account shows up as a credit in another account, creating added accountability and transparency. This allows for more comprehensive and complete tracking, and analysis of financial transactions. McLan Accounting Services LLC can help you set up a bookkeeping system that not only provides basic bookkeeping functions, but is also tailored to the unique needs of your business.
Cash Versus Accrual Accounting
If your business has under $5 million in sales during the year, the IRS allows you to use the cash method of bookkeeping. The cash method records financial transactions when cash is exchanged; revenue is recorded when cash is received, and expenses are recorded when cash is paid out. In contrast, the accrual system of accounting records transactions when they occur, regardless of whether any cash has been paid out or received by the business. This is especially helpful for businesses that expect to have revenue streams that are spread out over long periods. Used in conjunction with a cash flow analysis, the accrual method of matching expenses to revenues as they occur allows a business to get a complete picture of its current and projected financial situation.
Whether you have a large or small business, McLan Accounting Services LLC can help you establish proper bookkeeping practices. With an appropriate accounting system to record, analyze and monitor your financial transactions, McLan Accounting can better assist with your needs. Contact us today to find out how McLan Accounting Services LLC’s bookkeeping services can help you keep your business on track.