A business that doesn’t practice bookkeeping basics is like a car without an instrument panel. You don’t know how much fuel you’re using, how fast you’re going, or if there are any warning signs indicating a problem. Just as an instrument panel provides critical information for safe and efficient driving, proper bookkeeping offers essential insights into your business’s financial health. Bookkeeping helps you make informed decisions and avoid costly mistakes.
In this article, we’ll explore the 7 bookkeeping basics for Phoenix Business Owners, in addition to helping you find independent bookkeepers in Phoenix and bookkeeping services in Phoenix.
There are a number of reasons that bookkeeping is essential for business owners.
Bookkeeping can be as simple or as complex as you’re comfortable and capable of making it. But at the bare minimum, these are the bookkeeping basics every Phoenix business owner should know.
Bookkeeping is another name for accounting. And as you know, most businesses require an outside accountant, a CFO, or an entire accounting department… depending on the size of your company. But at the bare minimum, every business owner is capable of basic bookkeeping to track the financial health of their company.
These bookkeeping basics include:
Now, let’s explore each of these in detail.
Differentiating between personal and business expenses is crucial for accurate bookkeeping and tax compliance. Personal expenses are those incurred for personal needs and daily living, such as groceries and rent. Business expenses are directly related to the operation and growth of the business, like office supplies, marketing costs, and travel for business purposes.
Keeping detailed records and clearly marking receipts with the nature of the expense can further help maintain this distinction.
Tip 1: Start by opening separate bank accounts and credit cards for business transactions, ensuring no mingling of personal funds.
Tip 2: Is this expense necessary and directly related to the operation and growth of the business? If you can make a compelling case that the expense is essential for either generating income or maintaining the business operation, then it is a business expense.
Scrambling to find receipts for your expenses is not fun. That’s why it’s best to create a simple system for logging your expenses at the moment they’re incurred. Here are the steps we recommend for logging your receipts.
Lastly, you should set aside time weekly or monthly to review and reconcile receipts with bank statements, maintaining an organized and up-to-date record system. More on that later.
Everyone’s favorite part of bookkeeping must be the money owed and money received. To create a system for recording income and invoices, a business owner should consider using accounting software like Quickbooks or creating their own simplified spreadsheet that includes the following:
Record each invoice upon issuance and update it when payment is received, noting the payment date.
Also, maintaining an accounts receivable ledger will help you monitor outstanding payments. It’s important to follow-up on overdue invoices regularly, as this is money owed on work already done.
A balance sheet helps business owners understand what the business owns (assets), what it owes (liabilities), and the owner’s stake in the company (equity). It provides a snapshot of a business’s financial health at a specific point in time.
The balance sheet should always follow the formula: Assets = Liabilities + Equity
Start by categorizing assets into current (cash, accounts receivable) and non-current (equipment, property).
This information is crucial for assessing the company’s financial stability, making informed decisions, securing loans, and attracting investors. By regularly reviewing the balance sheet, owners can identify trends, manage resources effectively, and plan for future growth.
It’s important to do a periodic review of your company’s books. Here’s a checklist for any business owner that wants to systematically review their financial health:
By systematically reviewing financial data, business owners can maintain accurate records, identify trends, and make informed decisions.
State-by-state, tax codes differ for businesses. That’s why it’s critical to be aware of your state’s practices. For example:
Arizona’s Transaction Privilege Tax (TPT) is imposed on the privilege of conducting business in this state. It differs from a sales tax in that the tax is imposed on the business, not the purchaser. However, Transaction privilege tax is commonly referred to as a sales tax. While a business may pass the tax on to the consumer in the manner of a sales tax, the business is responsible for reporting and remitting the appropriate tax on their business activity.
How you report and pay your tax depends on how much you make, which is detailed on the City of Phoenix tax site. If this feels too complicated, then rest assured that there are many bookkeepers in Phoenix that can help you!
At 4Corner Business Services, we specialize in Bookkeeping, Accounting & Business Accounting. We give you the ease of mind that your financial reporting is done right, so you can focus on operating and growing your business.
Schedule your free bookkeeping consultation with us here.
You can have the most elaborate and beautiful bookkeeping methods, but if your #s don’t match with your bank’s #s, then you’re going to be in for some real headaches. That is why bookkeeping basics includes performing periodic bank reconciliations, which is the process of double-checking your balances against the bank’s.
To perform a bank reconciliation, a business owner should:
By regularly performing bank reconciliations, business owners can maintain accurate financial records and identify potential issues early.
We threw a lot at you. And these are just the bookkeeping basics. There are many more levels to bookkeeping that alter what you owe in taxes, such as inventory reporting methods of FIFO vs. LIFO. We certainly don’t expect you to tackle this all on your own.
So, have you considered hiring a bookkeeping service in Phoenix?
Setting all this bookkeeping up can take some serious time.
Tracking all of this can feel overwhelming.
Making sense of your balance sheet and analyzing the health of your finances is not easy without a degree in business administration.
Now that you understand the importance of bookkeeping to your business and also some bookkeeping basics, let me tell you a little bit about 4 Corners and how we can help you do all of this and more for your business.
4 Corners provides professional bookkeeping services to business owners of all sizes. Our services include Business Accounting, Tax Services, Tax Resolution, and Business Consulting.
We pride ourselves on efficiency and reliability in providing exceptional financial services for our clients. By leveraging the knowledge and experience of our professional bookkeepers, we will pass these benefits on to your business:
If this sounds of interest to you, then please…