The term “bookkeeping” might conjure up scenes from a classic gangster flick, with back-alley deals, horse betting, and offers “you can’t refuse.” But the reality is that this couldn’t be farther from the truth. Sure, we have our fair share of excitement—an unreconciled transaction or an uncategorized charge (we kid, we kid). Bookkeeping is an arduous and time consuming process, a marathon that begins the day you open for business, to the day you (hopefully never) close your doors.

The purpose of this article is to give business owners a full overview of what bookkeeping entails so that they can A. implement proper bookkeeping practices, B. decide which bookkeeping methodology to use (yes, there’s more than one way to keep your books…) and C. decide if it’s something you really can and should do. 

Since there is a lot of information contained on this page, we recommend you bookmark this page and refer to it often.

What is Bookkeeping?

Bookkeeping is simply keeping tabs on all of your financial transactions pertaining to business expenses. Or for the real nerds out there (and don’t worry, that includes most of us here in the office), here’s the Wikipedia answer:

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, such as the single-entry bookkeeping system and the double-entry bookkeeping system, but, while they may be thought of as “real” bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.

Is Bookkeeping Necessary?

Yes.

We thought about buttering up our answer a million different ways—but in the end, the three letter word “yes” is the correct response. Whether you own a web design company, niche pop culture news site or a multi-billion dollar car company—you need to implement proper bookkeeping techniques.

How you go about doing your books is up to you, but even if you don’t use a 3rd party bookkeeping service you must keep solid records of business transactions.

Why?

Because if you don’t, not only could you lose out on thousands of dollars in potential deductions—you could also lose compliance with the IRS. If the latter happens, not only will you not be eligible for deductions, you might end up owing the IRS money.

What are Good Bookkeeping Practices?

Rather than list a million things you should be doing, we will list some of the most common bookkeeping pitfalls and how you can avoid them, starting with unreconciled transactions.

Unreconciled transactions

Do you have unreconciled transactions on your books? Your books cannot be complete until all transactions that occurred in 2015 are categorized correctly. Solution? Think and act chronologically.

Loan payments

Do you have loan payments on your books? You may not have accounted for the principle and interest portions of the payments correctly. If you have categorized the whole payment to a single expense, your books are probably incorrect. Make sure you always account for the principle, as well as interest.

The infamous “shoe box”

Simply put, if your receipts are sitting in a box somewhere, then you haven’t even begun to keep your books. There is really no way to reconcile this pitfall except for to suggest that business owners abandon this practice and implement correct accounting principles from the beginning. Trust us when we say, it’s a lot easier to start documenting your transactions from the start, than to go through a year of coffee stained receipts to try and categorize transactions you may or may not remember.

Inventory count

Your books may have inaccurate values for inventory and Cost of Goods. This can be due to a miscount or, just as common, theft. This is especially important for business owners who have a physical product. Always stay current on inventory, and December 31 is always a good date to do a proper inventory check. This is a crucial step as you aim to properly keep your books.

Payroll

Like a bicycle wheel, you’re payroll needs truing. Such maintenance requires that your income statement show payroll at gross but without a manual adjustment to the standard bank feeds, this account is probably only shown at net payroll.

Accrual basis bookkeeping

There are numerous accounts that need to be manually updated at year-end. This task is often far too difficult if you do not have an accounting background. It’s best to discuss this process with a CPA or accountant.

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