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Post By: admin November 30 2022

Basics of Bookkeeping for Small Business Owners

In simple terms, bookkeeping refers to keeping track of the financial transactions of your business and systematically recording them to know where your money is flowing and where you earn profits. Bookkeeping plays a major role for business firms as it is the base of all other activities, without proper bookkeeping, no firm can achieve their goals as per expectations, as their decisions won't be based on accurate records of the transaction.

Why should small business owners understand the basics of bookkeeping?

Regardless of the size of the business, every individual who owns a business must be aware of the basics of bookkeeping to facilitate accurate data entry and proper organisation of transactions. Understanding the fundamentals of bookkeeping will give the business a better understanding of the importance and role of the bookkeeping activity.Also, the owner can implement cost-effective bookkeeping software that may provide simple transaction recording processes. After knowing the basics of bookkeeping, the owner will also be able to make strategic decisions.

Some basics of bookkeeping to be known by small business owners:

  • Choose a suitable bookkeeping method for your small business

There are mainly two types of bookkeeping methods: A single-entry system, in which the transactions are entered only once in the books, is mainly suitable for freelancers, sole-proprietors, etc. another method A double-entry system is one in which the transaction is recorded twice, once for credit and once for debit.It is the most feasible method as the errors can be detected easily, and it's the most common method. The business must select the method as per their comfort level and the nature of the business transactions.

  • Prepare a general ledger for your small business

The concept of a general ledger is one of the traditional methods by which transactions are recorded for the first time when they happen. In ancient times, people used to record it by jotting it down. But now the owners have a variety of facilities to maintain a general ledger in which the journal entries can be recorded. They can use Excel sheets and other cheap applications that can record the transactions and then organise them afterward. Hence, small business owners must set up their general ledger.

  • Record every transaction happening in the business

After setting up the accounts of the business, which includes creating different heads of accounts including the assets, liabilities, revenue, expenses, etc., the owner must ensure each transaction is entered into the correct account heads. Along with that, the owner must ensure that every transaction happening in the business is identified and recorded as per its nature. because skipping a minor transaction from being recorded will result in a huge error at the end as there will be a difference in credit and debit balances. So, ensuring the recording of every transaction is of utter importance.

  • Balancing the books

Balancing the books is the only way to identify if the transactions are entered correctly and if the accounts are proper or not. By balancing the books, the owners can ensure the accuracy of the accounts. The accounts must at least balance weekly, as this will reduce the burden at the month's end. Even balancing the accounts on a daily basis is a good option if it is feasible.

  • Creating and maintaining the financial reports

Maintaining the accounts, preparing the general ledger, and entering the transactions all point towards the final destination, which is the preparation of the financial reports, where the summary of all the transactions is to be recorded. The financial report of the business is the final document that reflects the result of the business undertaken. The financial reports include the following: 1. balance sheet, 2. cash flow statement, 3. profit and loss account. These are the financial reports in which the assets and liabilities, the revenue or expenses, and the outflow or inflow of cash are recorded. Every business owner must prepare these reports as they are of core importance and may be useful when taking credit from financial institutions, etc.

  • Implement a bookkeeping routine in the business

As explained earlier regarding balancing the accounts weekly, similarly, the owners must exercise the routine of entering the transactions and performing the bookkeeping activity regularly, which may be daily or weekly. Preparing the books regularly will reduce the chances of skipping any transactions and ensure accuracy.

  • Ensure confidentiality

Another major basic thing that the business owner must be aware of is confidentiality. The business owner must protect his records from being leaked or destroyed. He must store all the records securely and should avoid letting them fall into the hands of any third party. These records and documents are of utter importance for a business. 

How can CDA help small business owners with bookkeeping?

CDA being the leading auditing and accounting firm in Dubai, UAE is specialized in providing a variety of accounting services to its clients apart from auditing and accounting services. Bookkeeping is one such service that is provided by CDA. CDA with its professionalised team, provides custom-tailored and personalised services to the clientele as per their requirements. Small business owners can approach CDA to acquire the services at a feasible cost and with effective service. To know more contact CDA now.