Bookkeeping Basics for Small Business Owners

Bookkeeping Basics for Small Business Owners

American Institute of Professional Bookkeepers (AIPB) – To become AIPB-certified, you must meet the 3,000-hour work experience requirement and successfully pass a certification exam. This certification is ideal if you do not have any formal education in the bookkeeping and accounting field. However, if you have either formal education in the accounting/bookkeeping field or you have worked as a bookkeeper, then you should get certified before you start a bookkeeping business. One thing no bookkeeper should skip is finding a great banking partner.

We recently reviewed and updated this page to include a few key pricing updates (specifically to QuickBooks Online’s Simple Start plan, which now costs $25 rather than $20). We also added in more pricing information for Zoho Books, GoDaddy Online Bookkeeping, https://bookkeeping-reviews.com/ and ShoeBoxed. Finally, we revamped our frequently asked question section to give readers more information on how to determine if accounting software works for them. This article was written by the field service industry experts at Smart Service.

Tax year 2015 would reflect an overstatement of $5,000, since thats the year the $5,000 was received even though it was actually earned during December 2014. Under the accrual method, a net profit of $4,000 for 2014 would be correctly stated ($5,000 minus $1,000), since both income and related expenses would have been recognized in the books during December 2014. For example, suppose you started a business in December 2014. During December 2014, you paid $1,000 in expenses which generated $5,000 of income during December 2014. You receive the $5,000 of income during January 2015, the following tax year.

Now that we’ve covered the core accounting features that every business needs, we’re going to look at a few advanced accounting functions that could help you choose between Xero vs QuickBooks Online. After the lowest pricing plan, both Xero and QuickBooks Online have comparable pricing.

GoDaddy Online Bookkeeping: Best for bookkeeping

Both of these plans simplify your end-of-year tax filing process and automatically import sales data from sites like Amazon, plus data from your credit card and bank account. The Premium plan also takes care of recurring invoicing—automatically bill your regular customers without lifting a finger. The Get Paid plan starts at $4.99 per month and manages credit and debit payments. You can also create and send invoices automatically, track your mileage, and run a current year-end business report—not bad for just under $5 a month. This bare-bones, no-frills software lets you process debit and credit payments, take care of invoicing, and review basic loss and profit financial information.

Sage comes at a monthly cost of $29.95 per month, with customer service being a part of this cost. While the accrual method complies with GAAP, the cash method does not. Banks and other lenders may have less confidence in your financial statements if they are prepared under the cash method, making it more difficult to secure financing.

In addition to everything on the Simple Start plan, it gives you bill payment, time tracking and increases the number of users who are allowed access to three. Simpler businesses will find all the reports it needs in Xero. We prefer having the ability to use drag and drop to modify reports with the service over QuickBooks Online’s more involved process. That said, QuickBooks Online wins in this category because of the variety and usefulness of its reports. Even though QuickBooks Online integrates payroll processing, it only provides reports on total wages and payroll taxes, worker’s compensation and employee details.

Post corrected entries in the journal and ledger, then follow the process again until the accounts are balanced. Then you’re ready to close the books and prepare financial reports. However, most bookkeeping is done using the double-entry accounting system, which is sort of like Newton’s Third Law of Motion, but for finances.

Since you are starting a bookkeeping business, I’m sure that you have already given some thought (or made a decision) on which accounting software to use for your business. As you know, there are hundreds of options to choose from. When we contacted the company as a small business owner looking for new accounting software, the QuickBooks rep quickly transferred us to a sales rep, who was pleasant and helpful. He asked about our business and recommended a software plan based on our specific needs. He answered our questions promptly and provided a link to help us compare plans.

When it comes to small business taxes, using cash basis and accrual basis accounting can have huge consequences. At minimum, learning the difference between cash vs. accrual accounting will clear up the confusion as to why your statements appear to catalog certain things and not others. Any business is free to use accrual accounting, but only businesses with less than $25 million of gross revenue in the last three tax years can use cash basis accounting when reporting to the IRS.

For example, the accrual method could be used to account for inventory held for sale and the cash method to account for business expenses. Accrual basis accounting is more complex than cash basis accounting.

The Best Accounting Software for Small Businesses

This means that you can’t use cash basis accounting to keep track of invoices that you send to your customers or that vendors send to you. You’ll need to have a separate system for tracking those, so that they accurately appear on your balance sheet. Cash basis accounting makes it harder to track profitability by month. If you are using cash basis accounting, you won’t have a rent payment on your financial statements for June, which in turn will skew your net profit for the month. As the person who runs your company, you should know the difference between the two main methods of accounting for small business, who is eligible to use each,and when each method is the best choice.

Payroll and employee management is another feature of the program and is widely used by smaller and mid-sized businesses. If you’re new to cloud-based accounting software, we recommend Xero.

In addition to the core financial statements, basic accounts receivable and accounts payable aging reports track who owes you and what you owe by common past due buckets. QuickBooks Online delves deeper into accounts receivable than Xero. Invoicing isn’t complicated with either accounting service, and both Xero and QuickBooks Online have many advanced capabilities.

Although it creates more work for you in the long run, it is possible to use different accounting methods for your books and for tax filing. When you run your financial statements on an accrual basis, you must make sure all bills for expenses due and invoices for work done have been entered into your accounting system before producing the reports. This can make the end of the month stressful for you, especially if you don’t keep up with your bookkeeping throughout the month. However, it might be fine if you have a professional accountant to help out.

Even with your carefully maintained balance sheet and cash flow reports, it’s hard to predict what will happen in the future. That’s why it’s always a good idea to plan for significant or surprise—or significantly surprising—expenses with a cushion of savings. But actually, a liability is something you owe money on, such as a small-business loan.

I know people who like Quickbooks Online (and a lot that don’t). It’s never been so easy to do your own bookkeeping for your field service business, but you might want a certified public accountant (CPA) on your side to double-check your finances when it comes to taxes. It’s always wise to have a second opinion, especially when you first starting out as a small business owner and haven’t yet mastered the nuances of business tax. If you land a commercial or industrial client, you might get asked to provide financial reports. That’s because larger clients typically like to know exactly what they’re paying for, even if you already provided an itemized estimate.

Reports calculate profitability, unbilled time and expenses, so you can stay on top of the project’s health. QuickBooks Online doesn’t have fixed assets modules built in to its accounting software, so everything has to be handled manually.

• Wave doesn’t track inventory—one of the reasons why we recommend this product for service-based small businesses.
• Going back to our earlier example, in accrual basis accounting, the income for the work you performed would show up on July’s financial statements, not on August’s.
• Most small and medium-sized businesses can benefit from accounting software, no matter how many employees you have.
• Cloud applications are easier to setup and get operational.
• You also may be able to prevent or uncover fraud, whether from customers, vendors, or employees.
• At minimum, learning the difference between cash vs. accrual accounting will clear up the confusion as to why your statements appear to catalog certain things and not others.

As you establish a client base and get more comfortable with your bookkeeping business, continue your learning and consider offering more services. And any time you add a service is a great opportunity at which to re-evaluate your pricing structure and sell your clients on those new packages!

In the USA it inks to Quickbooks but here they are looking at QB and Xero for integration. However, if you need something with a bit more oomph, QuickBooks Online is the better choice, and the better choice overall, as well, making it the winner of this article, though only by a hair. Overall, Xero is an excellent choice for less experienced bookkeepers and small businesses not planning on growing too large. Comparing the user-friendliness of QuickBooks Online and Xero is somewhat of an apples to oranges situation.

If you think your business will grow into a larger entity, you’re better off choosing Quickbooks Online. Although there aren’t as many reports to run as with other accounting software, the P&L statement is often all a solopreneur needs. The other reports generated are only really relevant for a tax consultant. Essentials is great for businesses that have grown to a stage where they have heavy accounts payable and need more users in the file such as accounts and sales people. This version includes all the features of Simple Start and is available for 3 users in the file at the same time.

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That means you’ll want it to have information about all of your expenses, and all of your inflows. First things first, (OK, second, after the breathing), is to get somewhere to put all of this. There are a lot of tools out there, and I have feelings about all of them as a financial nerd. I use YNAB with my clients (scratching your head about how this would work? I’ve got a workshop for that).

If this is a feature you need now for your employees, you’ll have to add an integration, find a workaround or consider a different accounting application. QuickBooks Online provides several support channels to its customers.

In other words, under the accrual method, income and related expenses are reported in the correct year, which provides a more accurate picture of financial results. Accrual basis accounting achieves a more accurate measurement of Bookstime Services a business’s periodic net income because it attempts to match revenues and expenses related to the same accounting period. An accounting method is a set of rules used to determine how and when income and expenses are reported.

QuickBooks Online Plus is our choice for the best accounting software for small businesses that need advanced inventory management capabilities. With QuickBooks Online Plus, you receive automatic updates, low-stock alerts, and tracking for specific products. Inventory is managed in real time, so you won’t have to guess when it’s time to reorder your popular items.

In this free QuickBooks tutorial, you will learn about each version of QuickBooks and learn how to decide which https://bookkeeping-reviews.com/ one to purchase. In the long term, cloud applications are significantly more expensive for small businesses.

Developing a more robust set of offerings is also a solid way to attract new clients. You won’t find the same, real-time integration in any other competing field service software. Smart Service-QuickBooks integration means you can avoid entering financial data more than once. QuickBooks offers accounts payable and accounts receivable services.

Accrual Basis

Cash basis wasn’t giving them a clear picture of the overall performance of the company and cash flow was a big issue for them. If any of these questions are yes, accrual basis accounting might be best for your company. Investors and external parties need more complex reporting that shows how the business is performing.

Integration with other cloud based applications is easier. And, we’re told, monthly software payments help us with our cash flow. QuickBooks is a fine product and Intuit is a fine company.

You may want a range of choices for your payroll processor, but you’ll spend more time comparing options and fees. Xero’s mid-tier plan, called Growing, costs $30 per month and removes all usage restrictions without adding features.

Plus, you’ll be able to better understand your business’s finances—which, in turn, will help you make better business decisions. Read on to understand the pros and cons of these two main business accounting methods, along with some lesser-known accounting methods. To clear things up, we’ve answered a few of the most commonly asked questions about accounting software. Zoho Books’ website is a little less polished than some of the others on this list, but don’t let the site design turn you off to the product.

We’ve spoken to a number of QuickBooks Online customers and they have all been pleased with the service. They are all small, one man shops with minor accounting requirements so using a hosted service was an easy decision for them.

Hybrid Method

Xero offers reports to find the best selling and most profitable items, too. Plus, you get up to 4,000 tracked items and unlimited untracked items on every plan. Once again, with QuickBooks Online you have pay for the most expensive plan to get inventory functions.

You record revenue when you receive the actual cash from customers and expenses are recorded when you actually pay vendors and employees. Cash basis accounting is based on your company’s cash activity. You can think of cash basis accounting similarly to your checkbook register – at the end of the month, you balance everything to see how much cash you have in the bank. Many companies can choose which method they want to use depending on the needs of their business.