What is Bookkeeping and Can I DIY it?
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WHAT IS BOOKKEEPING?
Bookkeeping is basically keeping track of money for a business. You need to record income and expenses, make financial statements, and manage money that's owed and money that's due. It's super important to keep your finances in check so you can make good decisions about your business.
A Disney Travel Planning business is usually super simple, which means you can probably do the bookkeeping yourself. Someday, if your business grows and becomes more complicated, you should consider talking to an accountant or bookkeeper to make sure your financial records are accurate and up-to-date.
When you're doing bookkeeping, you need to know some financial jargon, be able to read basic financial statements, and be really detail-oriented. You can read more about some financial terms that are helpful to know in this blog post.
BOOKKEEPING VOCABULARY
ACCOUNTING PERIOD
An accounting period is an established range of time during which accounting functions are performed, aggregated, and analyzed. An accounting period may consist of weeks, months, quarters, calendar years, or fiscal years. The accounting period is useful in investing because potential shareholders analyze a company’s performance through its financial statements, which are based on a fixed accounting period.
Accounting period is simply the range of time that you decide you would like to use to analyze your bookkeeping. You can look at your books weekly, monthly or annually. When you start your business, you need to decide if you want to do your annual books for your taxes using a calendar year or a fiscal year. A fiscal year is just an arbitrary start date in the middle of the year for your accounting. I prefer to use a calendar year for my accounting, but it is up to you!
GENERAL LEDGER
A general ledger is a really useful way to keep track of a company's financial data. It's like a diary that records every financial transaction from the beginning of the company's life. This diary is used to prepare financial statements, and it contains information about assets, liabilities, owners’ equity, revenues, and expenses. To make sure everything is recorded correctly, we use something called a trial balance to validate debit and credit account records.
DEBITS AND CREDITS
Debits represent money being paid out of a particular account; credits represent money being paid in. The two are opposites!
TRIAL BALANCE
A trial balance is a worksheet that shows the debit and credit account totals that are the same for all ledgers.
CHART OF ACCOUNTS
A chart of accounts is your library of all of the accounts in your general ledger that you will use to classify your expenses and income. Basically, you are breaking your income and expenses into categories. This is especially helpful during tax season and makes it easier to find write offs.
EXPENSES
You know what they say, “you gotta spend money to make money”! An expense is any time you need to spend money for your business. The most common expenses include things like equipment, licenses, software subscriptions, client gifts and wages.
INCOME
Income is any money that you receive from commissions or sales in the process of doing business. This is your business’ total earnings.
BANK RECONCILIATION
A Bank Reconciliation outlines the deposits, withdrawals, and other activities affecting a bank account for a specific period, which are then compared to your bookkeeping records for the same time period. A bank reconciliation can help you to ensure that you are not missing any transactions in your accounting.
WHICH BOOKKEEPING SOFTWARE SHOULD I USE?
I am an advocate for tech software that makes life easier, so I do not recommend trying to keep your books on paper, it is too much of a hassle!
There are lots of software options out there for bookkeeping, some are paid like QuickBooks and Xero, but I prefer a free software called Wave. This free service is amazing for a simple business model. It works by pulling in all of the transactions that come through your bank account(s) and credit card account(s) and all you have to do is categorize them using your chart of accounts. Once all of your transactions are categorized, all you have to do is pull your reports and you are ready to go!