While bookkeeping can be a tedious and time-consuming task, it is a necessary part of any business. Bookkeeping ensures you have accurate and organized financial records for purposes of auditing and tax filing. It is also an important tool for analyzing a business’s financial health. Although bookkeeping is a complex and detail-oriented process, don’t let that intimidate you. You can simplify the process by breaking it down into smaller parts that are easier to manage. Here is a five-step guide to simplify your bookkeeping.
1. Set up a custom chart of accounts This is the first step towards simplifying accounting for your business. A chart of accounts helps to separate owner’s equity, revenues, expenditures, assets, and liabilities, making it easier to access accurate financial data with just a few clicks and understand a business’s financial health. When setting up your accounts, be sure to use a four-digit numbering system so that you’ll have many blank numbers left for adding accounts. This will help you to easily identify the type of account by its number and keep your books clean later.
2. Connect your banks to auto-sync Connecting your accounting platform to auto-sync with your bank eliminates most of the tedious work required in completing your business’s accounting. Automated bank synchronization allows you to perform an automatic reconciliation between cash inflows and outflows in real time, saving you time and hassle. You can expect to retrieve financial transaction information from your business accounts and compare it with data already in your books. This helps you to save time as it eliminates the bulk of data entry. Besides, it ensures your financial records are up to date so you can evaluate your business performance in real time.
3. Categorize daily transactions At its core, bookkeeping is about tracking where money has come from and gone to. To achieve this, businesses must categorize their transactions daily into their respective categories. Businesses can categorize their transactions in any way provided it serves the desired purpose of compliance and visibility. The most important thing is that the categorization of transactions should be consistent; however they are classified.
4. Reconcile your books with the bank Bank reconciliation refers to the process of matching the balances in a business’s financial records with the balance stated in the bank statement. Reconciling your books with the bank helps you to identify any accounting errors and spot inefficiencies. The bank statement reconciliation process is simple. You’ll start by adjusting the bank statement balance for deposits in transit and outstanding checks. The second step is to adjust the check register balance for bank service fees, non-sufficient funds checks, and interest earned. Lastly, compare the adjusted balances to ensure they are accurate.
5. Closing out your books monthly A month-end close is a process of verifying and adjusting a business’s account balances at the end of every month to produce accounting reports representative of a business’s true financial position. This process is very important as it gives you a clear insight into your business’s true financial position. Month-end closing entails various procedures, including updating accounts payable, reconciling accounts, reviewing financial statements, and many more. Closing your books monthly helps to keep your financial statements and books’ accurate and allows you to prepare for the future. It also makes tax filing and auditing simpler.