Common Bookkeeping FAQ’s from Small Business Owners
The basis of the organization’s accounting system starts with bookkeeping. Bookkeepers are tasked with recording and classifying all of the transactions; which is no simple task!
If you’re a small business owner, you have two options — set up your own accounting system, or hire someone to do it for you. We highly recommend hiring someone to do it for you, especially if you’re experiencing high growth. But if you’re running a one-person show or can count the number of employees on two hands, you should have no problem setting it up yourself. Regardless, the following information will help guide your bookkeeping efforts in the right direction. We’ll provide a list of common questions small business owners have today, and what your next steps should be.
Q1: I often hear the words bookkeeper, accountant, and controller used interchangeably. What’s the difference?
In a nutshell, a bookkeeper is someone who records and classifies financial transactions. The accountant is someone who analyzes, reviews, and reports on that information. The controller is an organization’s chief accounting officer, and is responsible for setting up and maintaining the accounting system.
At its essence, the controller is a company’s chief accounting officer. This person is responsible for setting up and maintaining the company’s accounting system and making sure the data is handled and responded to appropriately.
Q2: Can I handle bookkeeping without installing software?
It’s doable, but not advised. Having a bookkeeping software will save you time and money, and help to eliminate any human error. An accounting software is able to organize all of your data in a concise, easy to understand manner, and provide reports and insights you might not get otherwise. This is a great list of account software options for small business (although our bias, we highly recommend Quickbooks)!
Q3: Should I use single or double entry bookkeeping?
Single-entry bookkeeping is similar to keeping a check register. You record your transactions as you pay bills, and make deposits into your company account. This is a good option if your organization is very small with a low volume of transactions. If your organization is small but growing, double-entry bookkeeping will be your best bet. This allows for at least two entries to be made for each transaction. A debit is made to one account, and then a credit is made to another.
Q4: Should I use accrual accounting or cash?
Cash accounting is beneficial to those who are running a one-person business or less than 10 employees. Cash accounting just means that you record transactions in real time. This could be actual cash in person to an electronic funds transfer. It’s important to note that if you plan on offering your customers credit or if you plan on requesting credit from your suppliers, you have to use an accrual accounting system. Accrual accounting means that you record purchases immediately, even if the cash isn’t exchanged until later (think accounts payable or accounts receivable).
Q5: What factors do I need to consider before purchasing a software?
Before setting up a system, it’s important that you have a clear understanding of your organization’s assets, liability and equity. A good rule of thumb is to remember this equation: assets = liability + equity. In other words, the assets are balanced against claims against the business (liabilities and equity). Liabilities are any claims based on what you owe to vendors and lenders, and equity is any claims the business owners have against the remaining assets.
If you’re looking for someone to handle your organization’s bookkeeping efforts, Taurus CPA Solutions has you covered! We are Quickbooks certified and can help you understand where your efforts can be improved. Visit our accounting and bookkeeping services page for more information, contact us online, or give us a call at (410) 465-4600.