If you run your own business, you need to have an accurate way to account for your company’s transactions and keep your books up-to-date. One option you have is doing accounting yourself.
You may be a little apprehensive about doing your own accounting. After all, it is a big (and important) task. But by following a few simple steps, you can learn how to do your own accounting in no time.
How to do your own accounting
Learning how to do your own accounting for a small business is chock-full of perks. Here are some benefits of doing your own bookkeeping. You can:
- Save money by not hiring a tax professional (e.g., accountant)
- Get better insight into your company’s finances
- Find out what changes you need to make (e.g., cut back on business expenses)
- Have total control over your books
- Easily change processes and make adjustments, if needed
As you can tell, there are a lot of advantages to learning how to do your own bookkeeping. However, you also need to keep the cons in mind, too. Doing accounting yourself can be more time consuming than hiring someone to do it for you. Plus, if you’re new to the accounting game, you may be more prone to making accounting mistakes.
Doing your own bookkeeping might seem like a scary task. But, it doesn’t have to be. When it comes to doing your own accounting, you have a couple of options:
- Manually recording transactions by hand
- Utilizing accounting software
Before you can start doing your own accounting, you should:
- Choose an accounting method, if you haven’t already (e.g., cash-basis vs. accrual)
- Open a business bank account
- Determine your tax obligations
Once you begin doing accounting yourself, you should organize your chart of accounts (COA), keep track of expenses, set a small business budget, and make a schedule to keep your books up-to-date and organized.
By hand
When it comes to handling accounting yourself, one option is to manage your books by hand. Manually recording transactions by hand is the least expensive option. But, it is also the most time consuming.
When you record transactions by hand (e.g., in a spreadsheet), you must manually account for each transaction and calculate totals yourself. This can help you to cut costs. But if you’re unfamiliar with accounting basics, you may be more prone to making mistakes in your books. And, these mistakes can snowball into bigger problems down the road for you and your business.
If you want to manually record transactions by hand, you need to:
- Figure out how you are going to do it (e.g., use a spreadsheet)
- Get a firm grasp on accounting basics
- Brush up on accounting and tax laws
- Double-check your calculations when recording information in your books
How to record transactions manually
Want to save money by doing your accounting by hand? To record transactions manually, follow these steps:
- Identify and organize transactions
- Record transactions by hand
- Post entries to the general ledger
- Check to see if your accounts balance
- Double-check totals inputted
- Adjust entries if accounts don’t balance
- Check if your accounts balance after adjusting entries (if applicable)
- Create financial statements
- Close your books for the period
You should get in the habit of recording your transactions on a regular basis (e.g., weekly, monthly, etc.). Doing so keeps your books accurate, organized, and up-to-date.
Accounting software
Another option you have to do your own bookkeeping is accounting software. Accounting software is a good option if you want to streamline the way you record transactions. Plus, it’s a substantial time saver when it comes to handling your own books.
With accounting software, you can record transactions and automate accounting processes without having to stress about calculating totals yourself.
You can either get a cloud (aka online) accounting system or desktop accounting software. If you decide to use accounting software, first weigh the pros and cons of cloud vs. desktop software. And, looks at things like features, cost, usability, reliability, security, and accessibility.
Once you decide on an accounting software, get to know the software and its features like the back of your hand. That way, you can become a pro at using it to record your transactions.
How to set up and use accounting software
Keep in mind that processes and features may vary depending on what software you use. Here are some general steps to set up (steps 1 – 6) and use accounting software (steps 7 – 15):
- Select an accounting software (if you haven’t already)
- Choose an accounting method (e.g., cash-basis accounting)
- Set up your account information (e.g., create a chart of accounts)
- Input customer and vendor information
- Input unpaid invoices that are owed to you, if any
- Enter outstanding bills you owe, if any
- Identify and organize transactions
- Record transactions by hand
- Post entries to the general ledger
- Check to see if your accounts balance
- Double-check totals inputted
- Adjust entries if accounts don’t balance
- Check if your accounts balance after adjusting entries (if applicable)
- Create financial statements
- Close your books for the period
Don’t want to do your own accounting? Here are your other options
Maybe you’re not ready to handle your books by yourself. That’s OK! If you’re not wanting to go the “handle your own books” route, you can hire an accountant to do the heavy lifting for you.
Keep in mind that hiring an accountant is the most expensive accounting option out there. However, it is the least time-consuming option. Not to mention, hiring an accountant can help you steer clear of major accounting blunders.
If you’re not too keen on the idea of shelling out more money for an accountant to do all of the work, consider using accounting software to streamline your books. Then, you can gather accounting reports to pass along to your accountant.
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