So what IS bookkeeping anyway? Dictionary.com defines bookkeeping as, "the activity or occupation of keeping records of the financial affairs of a business". There are a lot of different ways this activity of record keeping can be achieved. Some people use paper and pencil, excel spreadsheets, boxes of receipts under the bed, memory (we don't suggest this), and probably the most common QuickBooks.
Bookkeeping is a way to keep all business expenses in one place, organized and classified, and see the financial health of the business. Each transaction that a business has, be it income, check purchase, credit card purchase, etc. is classified accordingly. These categories include things such as rent, office supplies, utilities, and cost of goods sold. One of the main things that all these classifications are used for is tax preparation. Entering this information into QuickBooks will give you the totals for all of these categories.
Beyond tax preparation, the two most common statements produced by accounting software are the income statement (profit & loss) and the balance sheet. The income statement shows the profitability of a business for a certain time frame, so essentially income minus expenses. The balance sheet is a bit more complicated and shows all areas of the business finances including (but not limited to) bank accounts, credit card balances, accounts receivable, accounts payable, inventory, shareholder distributions, and miscellaneous assets and liabilities.
Bookkeeping is important because it gives you the ability to see all of your business finances in one place. If you're waiting til the end of the year to total income and expenses, you may be shocked at how much money your small-business actually made because you were just spending everything that came in. Additionally, keeping accurate records ensures you are not missing any deductions to which you are entitled. If you're charging some money to multiple personal credit cards, some to your personal bank account, some to your business bank account, and some cash..how could you possibly be sure you've captured everything at the end of the year? Beyond that, if you do not have good records in place you could find yourself in a bad situation should you find yourself in an IRS audit.
If this all sounds overwhelming, luckily for you, this is what STL Bookkeeping & Tax manages for small businesses on a daily basis. Our bookkeeping packages come with a QuickBooks Online subscription included, and help you start to make sense of your business financials. If you'd like to hear more, or talk about your specific situation, please send a message or call 314-450-1140. I would love to talk to you and help you stress less about your bookkeeping! -Michelle Walsh