Operating a business can be difficult, and often an entrepreneur must stay on top of multiple aspects of the business, leaving other responsibilities by the wayside. You may be an expert in the services you provide, but you may lack the same level of expertise when it comes to crunching the numbers. When running a business, it is of utmost importance that your financial accounts are regularly maintained. Here are a few bookkeeping rules you should follow as a business owner.
1. Don’t Mix Business with Pleasure
The first and most important of all bookkeeping rules to follow is to keep your personal and business finances separate. While it is no secret that the capital you pull and the profits you acquire belong to you, it is essential to keep it isolated from your personal money. Maintaining a separate account for your business and personal finances is a good way to keep track of expenses and earnings. You should never include personal expenses or income unrelated to your business as part of your business bookkeeping. The more your business makes on paper, the more taxes you will be required to pay, so by keeping any personal income or expenditures separate from your business finances, you can avoid paying more in taxes than you have to.
2. Keep track of Retained Earnings
Second on our list of bookkeeping rules, is to track any of your company’s profits that are reinvested in the business and are not paid out to the owners in the form of a salaried wage. Retained earnings are cumulative, which means they appear as a running total of money that has been retained since the company was established. Managing this account doesn’t take a lot of time and is important to investors and lenders who want to track how well the company has done over time. This tip is essential for business growth, especially if you are planning on taking loans to expand your business. Lenders want to see that they are not taking a huge financial risk by loaning you money, and by having the capital to back up any loans you may take is a good way to show lenders that your business is not a risky investment.
3. Keep Track of Expenses
No matter how small of a transaction you may be making, if it is related to your business, it is of the utmost importance that you make a note of it in your books. These expenses may seem small, but over the course of the year they add up. It is important to keep track of these expenses because when it comes time to file taxes, these small individual purchases can add up to a larger deduction, thus lowering your tax liability and reducing the amount of taxes you pay.
4. Debit Incoming, Credit Outgoing
When a person gives something to the organization, it becomes an inflow and therefore the person must be credit in the books of accounts. The converse of this is also true, which is why the receiver needs to be debited. Real accounts involve machinery, land and building etc. They have a debit balance by default. Thus when you debit what comes in, you are adding to the existing account balance. Similarly when you credit what goes out, you are reducing the account balance.
5. Hire an Accountant
The best thing you can do to maintain your books and accounts is to hire a qualified and knowledgeable accountant. You likely have various other responsibilities within your business, and there is no such thing as taking a “quick look” at the books. So sitting for extended periods of time to tally your accounts regularly could present a potential problem. Hiring an expert to maintain your books and handle your accounts will ensure that there are no discrepancies. Also, with a qualified accountant at your service, you will have a better understanding of the accounting compliance and tax regulations that you are required to adhere to.
Conclusion
By Following these simple bookkeeping rules you can ensure that your business runs like a well oiled machine. It is necessary to maintain your books regularly. Get in touch with the experts at Excellent Admin and learn how you can get a free $25 Visa Gift Card when you refer a friend.