Small business bookkeeping – Here's how

Bookkeeping has gone from hand-written ledgers to high-tech automation – but it’s just as important for a small business as ever. Want to get your head around keeping good financial records? Start here.

While software has replaced the leather-bound ledgers of the past, bookkeeping is still an essential task for modern business owners.

Here’s how it works – and why it’s so important.

Bookkeeping benefits

Accurate, up-to-date financial records are vital for running a small business. They let you keep tabs on spending, help you plan and budget, avoid cash-flow issues and identify payment issues that could be costing you money.

Even more important, well-kept books are a must when it comes to completing accurate tax returns and working with lenders.

Bookkeeping basics

1. Recording means keeping a record of every incoming and outgoing transaction.
2. Reconciling involves checking transaction data against bank statements to make sure everything matches up. This helps you identify errors or late payments – or in some cases, fraudulent activity.

Bookkeeping in a small business also includes accounts receivable, accounts payable and payroll – that is, sending outgoing invoices, paying incoming bills and paying staff.

Simplifying bookkeeping with software

In the past, business owners recorded sales in a ledger, kept paper receipts for business purchases, and cross-referenced bank statements by hand.

Now, accounting software can take on many of those tasks.

• Recording sales: information flows straight from a point-of-sale or invoicing system into accounting software.
• Tracking purchases: business purchase data can be automatically recorded.
• Reconciliation: is quicker and more accurate.
• Invoicing and bill payments: can be automated.

​Need help getting your books under control? Get expert bookkeeping support from our accounting team, now.

The following content was originally published by Xero in this article. We have updated some of it for our readers.