Online Bookkeeping can be an easy task to do.
If you are a small business owner or thinking about pursuing a small business, accounting may present a daunting task.
Most small business owners don’t have a degree in the subject and find it very confusing. Due to this, accounting can be poorly done and cause many problems for the business.
Bookkeeping can be the difference between a business breaking even and reaching its full potential. Don’t be the business missing payments or losing money because of bad bookkeeping.
All small businesses should sign up for an online bookkeeping service to maximize their success moving forward.
What is Online Bookkeeping?
Current technology has allowed businesses to shift their bookkeeping from physical “books” to the online cloud.
Using online bookkeeping, a company’s books will always be safe and easy to access. It allows a company to keep track of their revenues and expenses in real time from anywhere.
You don’t have to worry about coffee spills on the keyboard or computer viruses corrupting all your data anymore. The cloud is accessible on computers, tablets, or smartphones and allows multiple people to work on the books simultaneously.
Why would you not be interested in making your business more successful using online bookkeeping?
The following includes a few steps to get you started towards success.
Please feel free to comment below if you would like any further tips or help.
Online Bookkeeping in 5 Easy Steps!
1. Invest in an online bookkeeping software.
The first step to successful online bookkeeping is to invest in an online bookkeeping/accounting app.
A business can keep their books by hand or in a spreadsheet, but that leaves too much room for error.
Make it easy for your small business and purchase an online bookkeeping software such as QuickBooks Online. QuickBooks is a non-expensive software and uses visual mapping to help you understand bookkeeping.
By using online bookkeeping software, you can keep your books organized.
Software will keep accurate books, manage invoices, pay bills, and track bank account balances. Additionally, online bookkeeping software will generate reports helpful to the management of your business.
Although it can be done the old fashioned way, an online software gets you more for your business.
It will keep you protected, increase accessibility, and provide guidance for your company.
2. Learn the financial statements
Get to know the accounting formula of Assets = Liabilities + Owner’s Equity (“ALOE”).
This is a key accounting tool and will allow you to understand and use your company’s balance sheet.
Assets are anything (tangible or intangible) that helps your company generate revenues for your business. This can include buildings, trucks, inventory, accounts receivable, or cash.
On the other side, you have liabilities and owner’s equity.
Liabilities are an obligation that a business has to fulfill like accounts payable or notes payable.
Owner’s equity is the equity in the business which includes any money kept within the business in retained earnings.
The net income (loss) that is calculated in the next paragraph also ends up in this category.
All three of these categories play a key role in the business ownership and can be tracked through online bookkeeping.
Likewise, as a business owner, it’s important to get familiar with the Income Statement.
This financial statement shows all revenues as well as expenses recorded in the current year or month.
Unlike the balance sheet which is ongoing since the inception of the business, the income statement ‘resets’ every year.
This statement brings transparency to business management as they can see a current standing of their business.
It will show if the company is operating profitably or in a loss.
Knowing this information is very important to making business expenditures.
Also, if your company is showing profits but lacks cash this could present another problem.
Your accounts receivable (money owed to you but no collected) is aging and needs to be collected.
Understanding these financial statement basics will allow you to maximize the utility that online bookkeeping provides.
3.Debits and Credits
Debits and credits are the basic building blocks of current accounting.
This doesn’t mean your debit / credit card, but rather the way items are entered in an online bookkeeping app.
Current accounting uses the double entry bookkeeping method which requires both of these in every entry. Every bookkeeping entry must affect and account on both sides of the accounting equation.
Additionally, any entry a bookkeeping team makes must be in balance. Being in balance means that the debit amounts equals the credit amounts; this makes the equation equal.
Before I confuse you too much, remember that debits are left and credits are right.
After you understand the concept of debits and credits it’s important to know what they do.
Debits increase all assets and expenses, and decrease all liabilities, owner’s equity, and revenues.
Credits are the exact inverse increasing liabilities, owner’s equity, and revenues, and decreasing assets and expenses.
A trick to remember this, anything on the left of the equation increases with debits and the right side with credits.
When entering items in the general journal, you will use this technique of using debits and credits.
Some online bookkeeping platforms have become more intuitive and have created different interfaces.
These tend to make more sense to business owners than journal entries and records the journal entry for you.
Even if the software does it for you, it’s helpful to understand why it does what it does.
4. Chart of Accounts
A chart of accounts is all the different accounts (or ‘categories’) that a company assigns amounts to.
This includes all assets, liabilities, equity accounts, revenues, cost of goods sold, and expenses.
The bookkeeping team should hold a meeting with management to discuss what accounts are needed for recording business activities.
Basic account lists can be found on the internet but each business is unique and therefore has different accounts. For example, a hair salon might have separate hair product accounts in their Chart of Accounts.
Having these same accounts wouldn’t make sense for a construction contractor.
These accounts will be used when making journal entries and therefore show up on the financial statements.
The accounts must make sense for the business as well as provide insight for management.
For example, a construction company wants to know what they spend on different materials to build a house. The company might have a wood, hardware, concrete, insulation, and drywall account. If this were just one account labeled materials then management couldn’t see where they might be overspending.
You will also have accounts in your Chart of Accounts for each business bank account or credit card.
With most cloud-based or online bookkeeping/accounting apps, these accounts have become even easier.
You can securely ‘connect’ your online bank account or credit card account to that in the Chart of Accounts.
This way, all the transactions – debits and credits – can be automatically downloaded to your online bookkeeping app.
This eliminates the process of you entering transactions and reconciling at the end of the month. This save time for other managing activities versus entering each transaction manually using bank or credit card statements.
Accounts can be added, but you should start with a basic understanding of what accounts your business will need.
Conversely accounts should never be deleted from your chart of accounts.
Even if the account is no longer used, the previous transactions assigned to that account still exist.
There are two options for getting rid of accounts that are no longer used.
The first, make the account inactive, this keeps the account but takes it off the current chart of accounts.
The second, merge the account into a different account. The new account must be under the same category, e.g. expenses, assets.
The chart of accounts is the backbone of a company’s accounting and should be well thought out.
5. Start Online Bookkeeping
Now that you know the basics of bookkeeping and software to coach you through it, it’s time to start.
Starting is the hardest part because everything is new and you might still be figuring out the chart of accounts.
Once things get rolling it will become easier and more intuitive.
Bookkeeping includes recording bills received from vendors that will go into accounts payable. It also includes creating invoices to customers once the service or product has been delivered.
Additionally, it’s recording charges on your company credit card or bank account so that you don’t overspend.
Bookkeeping can get complex but if you start with these items, you can expand from there.
This may seem like a lot, but if you have done steps 1-4 it shouldn’t be too challenging.
You can now better manage your business and have it all documented in your books using cloud based accounting.
Don’t Have the Time For Online Bookkeeping?
Don’t worry, bookkeeping isn’t for everyone so don’t get discouraged if it still confuses you.
Lucky for you there are companies that will do your bookkeeping for you.
At ALOEwerx we will take care of all your accounting, bookkeeping, and tax needs.
We utilize the cloud to perform online bookkeeping for you.
Using the cloud allows us to do the bookkeeping but you also have access to it 24/7. This way you can still get the management benefits without the countless hours spent.
Of course there are other outside bookkeeping options on the market, however, no one matches what we offer.
ALOEwerx provides a CPA, bookkeeper, and accountant for every client.
This allows you to focus on the work you love – not bookkeeping, accounting and tax work.
We are truly a painless accounting service so you don’t have to feel any of the stress.
We offer all this for starting at just $35 a month!
If you make $50,000 a year, it’s equivalent to less than 1.5 hours of your time every month.
I can bet that doing all of this will take you more than 1.5 hours a month.
Don’t let your business go another day without online bookkeeping and the benefits it brings.