New-Business Bookkeeping How-To
- 1). Select the cash basis or accrual accounting method. Cash basis records transactions when cash is received and an expense is recorded when it is paid. Accrual accounting records income when services are rendered or as products are shipped and expenses are recorded when they are required to be paid, resulting in a more accurate reflection of income and better trend analysis.
- 2). Set up a basic accounting system. For example, use a multidrawer file cabinet to store customer invoices with accounts receivable, accounts payable and normal business expenses. One drawer for each item is typically sufficient early in the business, depending on the size of operations.
- 3). Create a general ledger system. Basic spreadsheets provide a way to develop a small-scale general ledger. Add tabs to the spreadsheet for the different accounting activities, such as sales, cost of goods sold, accounts receivable, accounts payable, general and any other items that regularly occur in the business. Input data into the spreadsheet as information comes into the business.
- 4). Implement a bank reconciliation activity. Even when using the cash basis accounting method, reconciling the business checking account to the accounting system is essential. Monthly reconciliations are generally sufficient for new businesses.
- 5). Allocate a minimum of one hour a day to accounting and administrative tasks. This allows for a daily review of financial activity and can help make the entire process more familiar. This time also allows for creating a budget to make sure expenditures do not exceed incoming revenue.
- 6). Create a profit and loss statement at the end of each month. This statement will require taking information from the spreadsheet tabs and putting it into a standard form. List sales and subtract cost of goods sold. From this number, subtract all expenses for the month and the result is the profit earned by the company.