As a business owner, you have mastered the art and science of creating great products or services, winning over customers, and building high-performing teams. But are you equally versed in Bookkeeping and understanding your business financials? Bookkeeping involves recording cash flow and all financial transactions, including income like client payments and expenses, such as payroll and materials costs.
Knowledge of basic Bookkeeping will help you keep track of your company’s financial health, file taxes on time, stay prepared for government audits, and optimize your business budgeting. Meticulous Bookkeeping gives you a reliable measure of your company’s performance and a clear picture of your business financials while guiding your strategic decisions.
To learn more about how small business bookkeeping services can help you better understand the financial aspects of your business, read below, or contact us at Bookkeeping for You.
5 Types of Business Financials
While cash is the most obvious business financial, you need to maintain other types of accounts to get a clear view of your business’s financial status. Here is a closer look at the types of business financials you need to be familiar with:
- Cash or Accrual Accounting – Cash accounting is straightforward. This is where transactions are recorded when money comes in (cash receipts) or goes out (cash payments or disbursements). Accrual accounting follows the matching principle: revenues and expenses should be recognized in the same period.
- Inventory – Inventory refers to all the materials and goods your business stores to manufacture products or sell. These can include supplies, raw materials, merchandise, and other items. Recording these details help you avoid issues such as overstocking or running out of stock, apart from keeping track of unsold products.
- Purchases – As a general ledger account, the purchases account is where you record inventory purchases. Beginning inventory is the cost of the inventory at the beginning of the accounting period while ending inventory is the cost of purchased items at the end of the accounting period. The cost of goods sold is calculated using these entries using this formula: Beginning inventory + purchases in the accounting period – ending inventory = Cost of goods sold or COGS.
- Accounts Receivable and Accounts Payable – Accounts payable refers to the money your company owes its vendors, while accounts receivables are what is owed to your company. According to a survey, 39 percent of payments are not received on time in the U.S., while 1.5 percent of ARs are written off as bad debt on average. For a $20 million company, this translates to an expense of $300K each year. Keeping track of accounts receivables is crucial to ensure your company maintains a healthy cash flow. With proper records of these business financials, you can avoid delays and errors in payments that protect your company’s reputation and bottom line.
- Payroll Expenses – Payroll is the biggest expense for most businesses. As per an estimate, payroll expenses account for 15 to 30 percent of the revenue, while it can be as high as 50 percent for labor-intensive businesses. Apart from gross wages, payroll will include bonuses, overtime payments, health insurance, income tax, and FICA tax payable. Accurately recording these details is vital for complying with tax reporting requirements and monitoring your expenses.
Why Outsource Your Financial Records & Accounts To an Expert Bookkeeper?
Bookkeeping can seem like a tedious task that takes away your focus from your core business tasks. The experts at Bookkeeping For You are adept at accurately recording all your company’s expenses, transactions, and revenue. Working with our bookkeepers is the simplest way of overcoming the hassles of Bookkeeping and better understanding what your business financials and accounts are trying to tell you.
With a meticulous recording of vital financial data, we help you stay organized, receive timely payments, and meet compliance requirements. Contact us to learn how our bookkeeping services for small businesses can help you optimize your business financials and growth.