A Guide to Basic Bookkeeping for New Business Owners

A bookkeeper is an important operational role to fill in any business, whether you’re big and established or small and just getting started. Tracking your finances gives you the full picture of your overall financial situation so you can maintain business growth and learn from what’s happened along the way. Better technology and specific software help your bookkeeper immensely, tailoring how they keep track of business transactions and receipts in a way that fits your needs.

But First, What is Bookkeeping?

In the accounting bookkeeping process, financial transactions are recorded, classified and organised in a general ledger. Your bookkeeper takes care of these transactions by moving money within your company. Money could be moved around for any of the following:

• Sales of products or services
• Supply purchases
• Cash deposits
• Money transfers
• Bill payments
• Salary and bonus payouts
• Taxes

It may sound tedious but a bookkeeper is essential if you want your business to survive and thrive, because they allow you to:

• Better understand what’s happening to your finances, income and business as a whole.
• Forecast and plan. If you’re aware of how much you earn and spend, you know how many employees you can hire, how many supplies you can buy, and how much product you can deliver next week or month.Accurately report your financial transactions to the government and pay taxes.

Bookkeeper Basics

The process of recording all the financial transactions made by your company as part of business accounting is done by your bookkeeper. They’re responsible for documenting, categorising and organising every single financial transaction made as part of your business operations. Right from day one.

What Skills Should You Look For In A Bookkeeper?

The only way your business can continue operating is to ensure a healthy flow of funds. When they’re the right person for the job, a bookkeeper will help you manage your finances and subsequently promote your company’s growth and success. They do this by:

1. Recordkeeping — recording transactions and events in an accounting system to help you stay compliant, prevent theft, and prepare tax returns.
2. Using Bookkeeping software — this helps your bookkeeper identify and correct errors, store all of your business records in one place, automate invoice reconciliation, and prepare all your books and accounting reports.

Differences Between Bookkeepers and Accountants

Bookkeeping and accounting are linked but they’re not quite the same; bookkeeping comes before the accounting process. A bookkeeper is responsible for recording day-to-day data that’s passed over to an accountant who’ll concentrate on a business’s strategic financial operations. Here’s what this means:

• Bookkeeping focuses on day-to-day transactions and collecting all documents containing transaction data which is then sorted out into categories of “debit” or “credit”. This data is then entered into the books — such as an accounting journal, cash book or a general ledger.
• Accounting analyses transaction data to get the big picture that shows what’s going on with a business’ finances at large. In accounting, you work with big masses of data that are compiled by the end of specified periods of time — like the end of a month, quarter, or year.

Alternatively, you may also wish to outsource your bookkeeping and accounting to Osome for a flat fee that covers your bookkeeping, financial statements, management reports, and tax filing.

What Are The Benefits of Hiring a Qualified Bookkeeper?

1. Monitor your cash flow

Maintaining daily records allows you to easily keep track of your business’s financial condition. Implement a routine and stick to it so you can jot down accurate records every day to minimise mistakes when it comes to filing tax returns.

2. Lets you concentrate on growing your business

With a better understanding of your cash flow, you can also form better business strategies with greater confidence since you know where the money is flowing in and out of. You can then set realistic budgets that won’t constrain other aspects of your business.

3. Reduces costs

In the beginning, most small businesses choose to be their own bookkeeper and outsource more complicated accounting matters. For start-ups, this costs significantly less than hiring a full-time bookkeeper.

To really take the hassle off your plate, why not consider the option of outsourcing to a bookkeeper and accountant here at Osome? There’s one flat fee that covers your bookkeeping, financial statements, management reports and tax filing.

4. Allows quick access to important figures

Perhaps you’re considering a new business venture that requires specific financial information halfway through the month? Doing your books gives you quick access to vital figures, so you can easily crunch numbers without having to await an accountant’s response.

5. Helps with business analysis

A bookkeeper produces financial statements that’ll help with your business analysis. With this information, you can determine which business line is feasible. Along with that, you can focus on your business's strengths and improve on other weaknesses.

What Are Bookkeepers’ Main Activities?

1. Record financial transactions with double-entry bookkeeping

A bookkeeper will record every transaction in at least two places, known as double-entry bookkeeping, to reflect how the exchange took place as well as the eventual results. It's important your bookkeeper does this to paint a comprehensive picture of where your money is flowing out of so you can avoid making mistakes down the line.

2. Set up a Chart of Accounts

This is a full list of categories your business uses to classify and differentiate financial assets, liabilities, equity, income and more. Your bookkeeper will track each transaction that affects other aspects of your business, and adjust its balance accordingly.

Other than bookkeeping cash and inventory, your bookkeeper might als keep track of:

• Equity: The amount of money you invest in your company as an owner, including any profits accumulated.
• Accounts Payable: The account you can use to keep track of any money you owe to third parties such as suppliers, banks or the government.

• Accounts Receivable: This is the account for you to keep track of money that you anticipate receiving from third parties. Similar to Accounts Payable, this can be customers, banks or government.

• Costs of Goods Sold: This is where you record the amount spent on products or services you intend to sell.
• Expenses: The sum you spend to run your business. Expenses could be related to aspects that are not directly linked to the sale of goods or services.

Balancing the books requires you to subtract the liabilities from assets, revealing a number that may not be equal to your equity.

Balance the Books

Balancing the books requires your bookkeeper to subtract liabilities from assets, revealing a number that may not be equal to your equity.

Assets = Liabilities + Equity

When looking at these entries, you can see how this created an imbalance in the books, as HK$1,000 was added to the cash account and HK$500 was deducted from her inventory account. The current imbalance is HK$500 in retained earnings. Stephanie’s bookkeeper will then have to balance the books. With her retained earnings increasing by HK$500, her bookkeeper will make a corresponding entry to balance the other side of the equation. The bookkeeper adds the $500 to her equity category to restore the balance.

Prepare Financial Statements

Financial statements include the income statement, balance sheet and cash flow statement.

This information will come from the above examples.

• Balance Sheet: Equity + liabilities on one side; assets on the other side
• Income Statement: Revenue - (expenses + costs of goods sold) = net profit or loss

To get a full picture of your company’s financial statements, you can draw information from your different accounts. The Balance Sheet shows the balance of different accounts at the year-end date, while your Income Statement shows the total amount of Income and Expense items during the reporting period. The scale of your business will dictate how frequently you will require formal statements such as these.

What Details Will My Bookkeeper Need When Bookkeeping?

In bookkeeping, details are everything. To sort out transactions, your bookkeeper will draw information from source documents such as receipts and invoices. The information on these potentially useful documents include:

1. Date and time of transaction
2. Income vs expense
3. Customer or vendor names
4. Transaction amount
5. Transaction type

Knowing where different transactions belong is important as it lets you know how your business processes are going. It helps you understand how much you spend, earn (and how the two impact each other). So when you are designing transaction categories, think about your expenses and sources of revenue and ask yourself; Where does your money come from? What do you spend it on?

Imagine you’re a cafe owner who sells hotdogs and kebabs. Both of your signature products bring you income, but how much can you attribute to each? Should you be pushing to sell more hotdogs and fewer kebabs? If this is something you want to know, your bookkeeper can establish two income categories — “Hotdogs” and “Kebabs” — and then monitor how each of them drives your income.

If you have paid campaigns running in social media for your hotdogs and kebabs, your bookkeeper can create an expense category for “Ads''. Your bookkeeper can monitor all “Ads” transactions and see the efficiency of your campaigns and how your online spend may translate into kebab and hotdog sales.

Okay, How Do I Start Working As A Bookkeeper?

1. Start tracking transactions from the moment you open your business. Don’t wait until you get your first “substantial” pay check — there’s potential for a lot of things to go wrong in your startup company in the meantime, and without the books you won’t notice them!
2. Separate company and personal finances. Open a business bank account for your company as soon as your business is launched. You don’t want to accidentally deposit your personal income into your business account or pay for personal expenses with company money, do you?
3. Decide on a responsible bookkeeper for your company. Bookkeeping is a process that builds a foundation for all your business’s subsequent accounting and reporting. It requires someone with focus and an astute eye for numbers. Pick wisely.
4. Avoid mess and bookkeeping chaos — if it so happens that several people take care of your books, make sure each knows what the others are doing.
5. Schedule time to be a bookkeeper — set aside blocks of time in your week to review your financial standing. Do your best to sit down in front of your books at the same time every week. After all, scheduling your bookkeeping activity creates consistent habits and protects you from getting overwhelmed.
6. Know your tax obligations or talk to a tax consultant. Understand and anticipate what you have to pay for, and when those payments are due. Mark these dates in your schedule and you won’t be taken by surprise.
7. Choose a bookkeeping format: whether you’ll be dealing with paper or digital spreadsheets for an accounting journal, a cash book or a general ledger. If you’re tight on budget, you can use free software like Google Sheets. Seek what’ll work best for your needs (or give us a shout if you need a nudge in the right direction).
8. Choose a cash or accrual accounting system:
   • Cash accounting: You write down a transaction only when money changes hands and actual payment is made. With this system, you know how much money you can access at any given moment.
   • Accrual accounting: You write down revenue and expenses when they’re earned, even if actual payment happens much later. Accrual accounting gives you a bigger picture of your finances and allows for planning.
9. Decide if you’re a single-entry or double-entry type of bookkeeper: Double-entry bookkeeping is considered more precise. Single-entry bookkeeping records income and expenses in a cash register, while double-entry starts with a journal, followed by a ledger, a trial balance, and finally financial statements.
10. Set up your chart of accounts. This chart lists all your accounts, displays your assets (anything of value), liabilities (what you owe), income, and expenses with subcategories. It’s a very useful digital tool that consolidates all your transactions in one place.
11. Identify your tracking categories. Consider long-term goals and KPIs, reflect on how your business is structured, and decide what you pay attention to.
12. Collect all your source documents a.k.a. If you need a nudge on the best ways to organise them, give this article about organising your documents a read.
13. Write down all your transactions. Take all of the tips above into mind, of course, then first transfer them from source documents to your spreadsheet or accounting journal or cash book. Indicate all details, from the transaction date, items paid for or received, transaction amount, and whether it was income or expense.
14. Transfer the main points to your general ledger at the end of a week or month. Then, rinse and repeat until you’ve got everything sorted out and in tip-top shape.

An Ecommerce Business Bookkeeper

An ecommerce company bookkeeper performs similar tasks to a regular bookkeeper, but there are a few specific differences worth calling out:

• Selling on Platforms: The easiest way to launch an ecommerce business is to sell your products on a platform like Shopify or Amazon. Such platforms charge a fee for every sale you make, which affects how much money you make. This has to be reflected in your books.
• Working with Third-party Payment Processors: Many ecommerce companies export their products, which involves using third-party payment processors like PayPal, and working with foreign currencies. All of these add some challenges to your bookkeeper’s routine.
• Returns and Refunds: Ecommerce allows for returns and refunds, which might go through the same third-party processors or be issued in a different currency. In such cases, you bookkeeper needs to know who tracks a transaction — a platform or processor — and when to put it in your spreadsheet.