<p>You have a vision for helping others. Your non-profit can make a difference – if you can finish all the paperwork.&nbsp;</p><p>You know you need to keep your receipts and records, but you’re slowly finding that bookkeeping is more complex than simply tracking expenses. Bookkeeping for non-profit organizations requires a specific skill set because the rules differ from for-profit bookkeeping rules.&nbsp;</p><p>This article will cover the differences between non-profit and for-profit bookkeeping. We’ll also cover non-profit reporting requirements and our best practice recommendations.&nbsp;</p><h2 class="wp-block-heading">What Is Non-Profit Accounting?</h2><p>Non-profit accounting is a set of principles for recording non-profit organizations’ financial activities.&nbsp;</p><p>Non-profits must file annual reports to maintain <a class="link" href="https://1800accountant.com/blog/how-to-file-501a">tax-exempt status</a>; non-profit accounting supports these filings. Non-profit financials are publicized to help government agencies and donors understand how the organizations operate. Donors expect your non-profit to use funds toward its stated mission.</p><p>Bookkeeping is critical to supporting the accounting function.</p><h2 class="wp-block-heading">What Is Non-Profit Bookkeeping?</h2><p>Non-profit bookkeeping is the practice of maintaining <a class="link" href="https://1800accountant.com/services/bookkeeping">detailed, accurate records</a> of all revenues and expenses. Accountants rely on accurate bookkeeping for financial reporting and analysis.&nbsp;</p><p>Non-profit bookkeepers perform recordkeeping activities such as the following:&nbsp;</p><ul><li>Categorize revenues and expenses</li></ul><ul><li>Record in-kind donations</li></ul><ul><li>Record transactions</li></ul><ul><li>Verify general ledger balances</li></ul><ul><li>Reconcile bank accounts</li></ul><ul><li>Create invoices and purchase orders&nbsp;</li></ul><h3 class="wp-block-heading">How Is Non-Profit Bookkeeping Different from For-Profit Bookkeeping?</h3><p>The main difference between <em>non-profit</em> and <em>for-profit</em> bookkeeping is the application of <a class="link" href="https://www.fool.com/the-ascent/small-business/accounting/articles/nonprofit-accounting/" target="_blank" rel="noreferrer noopener">fund accounting principles</a> for non-profit organizations.&nbsp;</p><p>Both non-profit and for-profit organizations follow generally accepted accounting principles (GAAP). Non-profit bookkeepers need to understand and apply GAAP rules and fund accounting principles.</p><p>Non-profits prepare annual financial statements, which report detailed fund activities to the public. In contrast, for-profit organizations don’t need to track or report activities by fund.</p><h4 class="wp-block-heading">How Does Fund Accounting Work for Non-Profits?</h4><p>Non-profits receive funding through donations or grants. Some organizations also generate income from business activities such as selling merchandise. Each revenue source represents a separate fund.&nbsp;</p><p>Non-profits categorize and track each source of receipts and related expenses.&nbsp;</p><p>For example, imagine that your <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">non-profit organizes a fundraiser</a>. Your non-profit bookkeeper should set up a fund for the event. The event fund will reflect all related financial transactions, including donations from attendees and the cost of renting event space.&nbsp;</p><p>In addition to tracking each source of receipts as a separate fund, non-profits must categorize donations and expenses.&nbsp;</p><p>Donors can choose to designate donations for specific programs. Non-profits should categorize funds into the following donation categories:</p><ul><li><strong>Permanently restricted:</strong> The non-profit must use the donation for a specific program and cannot use funds for unrelated expenses.</li></ul><ul><li><strong>Temporarily restricted:</strong> The donation will expire, and the non-profit must use it for a specified program before its expiration.&nbsp;</li></ul><ul><li><strong>Unrestricted:</strong> The non-profit can use the donation for any expense, including administrative costs.&nbsp;</li></ul><p>Expense categories include the following:&nbsp;</p><ul><li><strong>General &amp; administrative expenses:</strong> Amounts spent on day-to-day operations, such as administrative and back-office employee wages.<br /></li><li><strong>Program expenses:</strong> Costs to run the non-profit’s programs that support its cause.<br /></li><li><strong>Fundraising expenses</strong><strong>:</strong> Costs of soliciting donations or grants from contributors, including advertisements and mailing costs.&nbsp;</li></ul><p>As you can see, fund accounting rules add complexity to non-profit bookkeeping.  Don’t let the nuances intimidate you  –    <a class="link" href="https://1800accountant.com/services/industry/nonprofit">1-800Accountant can help your non-profit with professional bookkeeping services</a>.&nbsp;</p><h3 class="wp-block-heading">What Are the Major Differences Between Non-Profit Accounting and Non-Profit Bookkeeping?</h3><p>The terms <em>bookkeeping</em> and <em>accounting</em> are used interchangeably, but the roles have different responsibilities.</p><p>Bookkeepers perform detailed tracking and categorization activities. Proper bookkeeping includes entering financial transactions and ensuring accurate ledger balances. Your bookkeeping activities support your compliance with fund accounting rules.</p><p>Accountants rely on accurate bookkeeping to prepare annual financial statements and tax returns. Non-profit accounting includes financial analysis for presentation to owners and the board of directors. Accountants often obtain advanced degrees and CPA (certified public accountant) licenses, requiring deep technical knowledge.&nbsp;</p><p>Do you need to decide whether your non-profit should hire a bookkeeper or an accountant? The following table compares the roles to help you determine the skillset you need.&nbsp;</p><p>Depending on the non-profit’s size, there may be some overlap in responsibilities, such as reconciling accounts or tracking expenses.&nbsp;</p><figure><table><tbody><tr><td><strong>Non-Profit Bookkeeper Responsibilities</strong></td><td><strong>Non-Profit Accountant Responsibilities</strong></td></tr><tr><td>Categorize revenues and expenses<br />Record in-kind donations<br />Record transactions<br />Verify general ledger balances<br />Reconcile bank accounts<br />Create invoices and purchase orders</td><td>Prepare financial statements<br />Prepare and file tax returns<br />Analyze financial trends<br />Analyze budget-to-actual differences<br />Monitor tax rules and deadlines<br />Assist with planning and forecasts</td></tr></tbody></table></figure><p>By the way, <a class="link" href="https://1800accountant.com/services/industry/nonprofit">1-800Accountant can support your non-profit with professional bookkeeping and accounting services</a>. Schedule a free call to get expert help with your compliance.</p><h2 class="wp-block-heading">Bookkeeping for Non-Profits: Requirements and Best Practices</h2><p>Your non-profit must prepare annual financial statements to report its activities. Your non-profit tax return should include data from your financials.</p><p>Compliance with non-profit reporting requirements is critical, or your organization could risk losing its <a class="link" href="https://1800accountant.com/blog/form-1023">tax-exempt status</a>.&nbsp;</p><h3 class="wp-block-heading">Non-Profit Financial Statements and Reports</h3><h4 class="wp-block-heading">Statement of Financial Position</h4><p>A non-profit statement of financial position should reflect all restricted, temporarily restricted, and unrestricted assets held at a given date. The statement should also report liabilities (amounts owed).&nbsp;</p><p>Unlike a for-profit balance sheet, the non-profit statement of financial position doesn’t report retained earnings or equity in the organization. Since non-profits cannot distribute profits to owners, total assets less liabilities represents net assets.&nbsp;</p><h4 class="wp-block-heading">Statement of Activities</h4><p>Similar to a for-profit income statement, the non-profit statement of activities reflects annual revenues and expenses.</p><p>Your statement of activities should categorize revenues into restricted, temporarily restricted, and unrestricted. Total revenue less expenses represents the change in net assets.&nbsp;</p><h4 class="wp-block-heading">Statement of Functional Expenses</h4><p>The statement of functional expenses offers a detailed view of a non-profit’s spending during the year.&nbsp;</p><p>Do you remember the non-profit expense categories we mentioned earlier? Your non-profit’s functional expense statement should detail all general &amp; administrative, program, and fundraising expenses.&nbsp;</p><h4 class="wp-block-heading">Statement of Cash Flows</h4><p>The non-profit statement of cash flows should list cash inflows and outflows during the year. Your non-profit should summarize the total cash received or used for operating, investing, and financing activities.&nbsp;</p><h4 class="wp-block-heading">Revenue and Expense Budget</h4><p>Non-profits should forecast expected income and expenses for the year ahead.</p><p>Your non-profit should estimate all funding it expects to receive. For example, imagine your non-profit has a long-standing relationship with a local company. You might anticipate donations from the business each year; you should include the estimate in your annual budget.</p><p>When estimating your expenses, consider all employee salaries and part-time wages. Estimate the costs of annual fundraisers and charity events your non-profit organizes.</p><h4 class="wp-block-heading">Form 990</h4><p><a class="link" href="https://www.irs.gov/charities-non-profits/churches-religious-organizations/filing-requirements-for-churches-and-religious-organizations" target="_blank" rel="noreferrer noopener">Tax-exempt non-profit organizations</a> should file <a class="link" href="https://www.irs.gov/pub/irs-pdf/f990.pdf" target="_blank" rel="noreferrer noopener">IRS Form 990</a>, Return of Organization Exempt From Income Tax. (Small non-profits can often file simpler forms, depending on their annual gross receipts. <a class="link" href="https://www.irs.gov/charities-non-profits/form-990-series-which-forms-do-exempt-organizations-file-filing-phase-in" target="_blank" rel="noreferrer noopener">Review the IRS guidelines</a> to determine which form you should file.)&nbsp;</p><p>Your non-profit financials support the information on Form 990. The lengthy, complex return requires specialized knowledge, and <a class="link" href="https://1800accountant.com/services/industry/nonprofit">we recommend consulting non-profit bookkeeping professionals</a> to help you prepare and file the form.&nbsp;</p><h3 class="wp-block-heading">Best Practices for Non-Profit Accounting</h3><p>Fund accounting rules leave plenty of room for error – especially if you’re new to bookkeeping. We put together our recommendations for non-profit accounting best practices.&nbsp;</p><ul><li>Set up a separate bank account for your non-profit and keep your personal finances separate.</li></ul><ul><li>Update and monitor your budget monthly so you can catch errant spending.&nbsp;</li></ul><ul><li>Implement proper internal controls for all financial duties.</li></ul><ul><li>Organize your tax return information early and make sure to file on time.</li></ul><ul><li>Outsource bookkeeping services to professionals if your employees need more industry expertise.</li></ul><h2 class="wp-block-heading">Non-Profit Bookkeeping Solutions</h2><p>Non-profits can choose from several bookkeeping solutions, including purchasing accounting software, hiring a full-time bookkeeper, or outsourcing to professionals.&nbsp;</p><p>Accounting software can help non-profits with tracking and categorization activities. For example, Quickbooks offers non-profit functionalities to help with fund accounting complexities.&nbsp;&nbsp;</p><p>When should a non-profit organization hire a full-time bookkeeper?&nbsp;</p><p>National or large non-profits may prefer to hire bookkeepers and accountants. Full-time staff can consistently track spending, monitor budgets, and prepare bank reconciliations. Additionally, full-time bookkeepers become intimately familiar with the non-profit’s activities.&nbsp;</p><p>When should a non-profit outsource bookkeeping services?&nbsp;</p><p>Many small non-profits have a modest budget or minimal operating activities. If your non-profit can’t hire an employee with specialized experience, consider outsourcing to third-party professionals. Bookkeeping professionals can help your non-profit maintain accurate records and comply with reporting requirements.</p><h3 class="wp-block-heading">Work with a Professional for Your Non-Profit Bookkeeping</h3><p>Non-profits need to comply with many complex rules. If your non-profit lacks the bandwidth or expertise to keep up with fund accounting rules, you could risk paying fines or losing your tax-exempt status.&nbsp;&nbsp;</p><p>The good news? You don’t have to manage your bookkeeping alone.&nbsp;</p><p>1-800Accountant has many resources for non-profit organizations. Our bookkeeping and accounting professionals can offer full-service support at a reasonable rate.&nbsp;<br />Schedule a free call with <a class="link" href="https://1800accountant.com/services/industry/nonprofit">1-800Accountant</a> to learn more about working with America's leading virtual accounting firm for <a class="link" href="https://1800accountant.com/services/industry/nonprofit">non-profit accounting services</a>.</p>

You have a vision for helping others. Your non-profit can make a difference – if you can finish all the paperwork.&nbsp; You know you need to keep your receipts and records, but you’re slowly finding that bookkeeping is more complex than simply tracking expenses. Bookkeeping for non-profit organizations requires a specific skill set because the [&hellip;]

A pile of papers with the words bookkeeping for non-profits.

bookkeeping-for-non-profit_blog-header

Bookkeeping for a Non-Profit: What You Need to Know

<p>You may be wondering: "Why create a chart of accounts?"<br><br>Even a basic chart of accounts is an excellent way to view your <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">business's finances</a>. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format.<br><br>In this blog, we'll go into detail about what a chart of accounts is, how to create one for your business, critical real-world examples, and other helpful information that provides you with a comprehensive picture. </p>



<h2 class="wp-block-heading">Understanding the small business chart of accounts</h2>



<h3 class="wp-block-heading">What is a chart of accounts?</h3>



<p>Your chart of accounts allows you to view multiple <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">financial transactions</a> along with a description, identification number, and name of each. You're able to view the chart of accounts categories within a general ledger, which includes:&nbsp;</p>



<ul>
<li>Assets</li>



<li>Liabilities</li>



<li>Shareholder’s equity</li>



<li>Revenue</li>



<li>Expenses</li>
</ul>



<h3 class="wp-block-heading">Main chart of accounts components</h3>



<p><strong>Assets</strong><br>What your business owns are called assets, and you'll track two types: current and noncurrent. The assets section in your chart of accounts will begin with the account number "1000."<br><br>Current assets include assets your business will use in the next year, such as:</p>



<ul>
<li>Accounts receivable&nbsp;</li>



<li>Cash</li>



<li>Inventory</li>



<li>Prepaid expenses</li>
</ul>



<p>Noncurrent assets or long-term assets are assets that will be used for longer than one year, including the following: </p>



<ul>
<li>Accumulated depreciation</li>



<li>Buildings</li>



<li>Furniture and fixtures</li>



<li>Leases&nbsp;</li>



<li>Plant and equipment</li>



<li>Vehicles</li>
</ul>



<p><strong>Liabilities</strong><br>Your business owes liabilities. This section begins with the account number "2000," and like your assets, you'll track both current and noncurrent liabilities.</p>



<p>Current liabilities, or short-term liabilities, include liabilities that your business will use next year. Current liabilities include:&nbsp;</p>



<ul>
<li>Loans and mortgages payable</li>



<li>Payroll taxes payable</li>



<li>Sales taxes payable</li>
</ul>



<p>Noncurrent liabilities or long-term liabilities are liabilities that will be used for longer than one year, including:&nbsp;</p>



<ul>
<li>Loans payable</li>



<li>Mortgages payable</li>
</ul>



<p><strong>Equity</strong><br>Equity refers to shareholder equity in your chart of accounts and will begin with the account number "3000." Common examples of equity found in your chart of accounts include: </p>



<ul>
<li>Common stock</li>



<li>Preferred stock</li>



<li>Retained earnings</li>
</ul>



<p><strong>Revenue</strong><br>Revenue is the income your business makes, primarily or secondarily. There are two revenue types that begin with the account number "4000" in your chart of accounts: operating revenue and non-operating revenue.</p>



<p>Operating income is the income that your business primarily makes. Non-operating revenue is revenue that your company makes indirectly. This form of revenue can come from:&nbsp;</p>



<ul>
<li>Asset write-downs</li>



<li>Dividend income&nbsp;</li>



<li>Foreign exchange gains or losses</li>



<li>Interest income</li>



<li>Profits or losses from investments</li>



<li>Rental income from property</li>
</ul>



<p><strong>Expenses</strong><br>There are two expense types: operating expenses and non-operating expenses, which will begin with the account number "5000."</p>



<p>Operating expenses are expenses that occur to cover operational costs. You may have expenses from the following:&nbsp;</p>



<ul>
<li>Equipment&nbsp;</li>



<li>Insurance</li>



<li>Inventory costs&nbsp;</li>



<li>Marketing</li>



<li>Payroll</li>



<li>Step costs</li>
</ul>



<p>Non-operating expenses are expenses unrelated to business operations. These include:&nbsp;</p>



<ul>
<li>Amortization&nbsp;</li>



<li>Depreciation</li>



<li>Interest charges</li>
</ul>



<h3 class="wp-block-heading">Importance of structure and organization&nbsp;</h3>



<p>There are two critical areas where your chart of accounts is vital for your business.<br><br><strong>1) Structure</strong>. How your chart of accounts is structured allows you to view all of your business's financial transactions based on the general ledger. This allows you to search transactions swiftly.<br><br><strong>2) Organization</strong>. A second benefit to the organization of a chart of accounts is that you can use this information for investment opportunities. This lets prospective investors or shareholders determine your business's financial health via the financial information provided. </p>



<h2 class="wp-block-heading">Components of a chart of accounts</h2>



<p>The information you record in your chart of accounts provides the data necessary to create your business's financial statements. All of your accounts will appear in these statements, with the chart of accounts determining which statement they should appear in. If your chart of accounts is outdated or incorrectly structured or organized, your statements won't be correct, either.<br><br>The financial statements include the following:&nbsp;</p>



<ul>
<li><strong>Income Statement</strong>. Also known as a profit and loss statement, this statement focuses on your business's revenue and expenses.&nbsp;</li>



<li><strong>Cash Flow Statement</strong>. This statement records the total cash from various sources, including petty cash, and cash going out of your business in support of your operations.&nbsp;</li>



<li><strong>Balance Sheet</strong>. This sheet records your business's assets, liabilities, shareholder equity, and debt.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">How to create a chart of accounts</h2>



<p>To set up your chart of accounts, you'll create three columns to help you categorize: an Account Name, Type of Account, and Description.</p>



<ul>
<li><strong>Account Name</strong>. You’ll list your account names in this column.&nbsp;</li>



<li><strong>Type of Account</strong>. This column, to the right of Account Name, will list the account that you’re adding. You can select from an asset, cost of goods sold, equity, expense, income, or liability.</li>



<li><strong>Description. </strong>The final column, to the Type of Account's right, describes the transaction that occurred.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Real-world examples of standard chart of accounts</h2>



<p>Medical practice chart of accounts (chart of accounts example 1)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Cash - Operating Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Cash - Savings Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Medical Supplies Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Medical Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Office Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Unearned Revenue</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Patient Service Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Medical Supplies Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Rent or Mortgage Expenses</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Utilities</strong></td></tr></tbody></table></figure>



<p>Restaurant chart of accounts (chart of accounts example 2)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Beverage Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Food Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Prepaid Expenses</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Dining Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Dining Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Loans</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Dining Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Food, beverage, and employee Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Insurance</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Depreciation Expense</strong></td></tr></tbody></table></figure>



<h2 class="wp-block-heading">Maintaining and updating a chart of accounts</h2>



<p>You will make adjustments to your chart of accounts as time goes on. But before you start, here are a couple of things to keep in mind.&nbsp;</p>



<ul>
<li>First, if you want to add an account to your chart of accounts, you should do so before it becomes a problem. While you can add transactions at any point in the year, you don’t want to delay adding transactions and their accompanying information. If you wait, then you may need to adjust other entries in related categories or subcategories, causing more issues.</li>
</ul>



<ul>
<li>Second, if you add an account, it is helpful to designate a name for it. The name most commonly used for newly added accounts is Miscellaneous Expenses. You should use this name whether you have one uncategorized transaction out of the year or multiple uncategorized transactions.&nbsp;</li>
</ul>



<ul>
<li>Third, if you add a Miscellaneous Expense to your account, provide a more detailed explanation than usual. Even though you’ve already added a description, you want to explain how and why this expense differs. As you add accounts to this category, make adjustments as needed.</li>
</ul>



<ul>
<li>Finally, and most importantly, you shouldn’t delete any accounts until the end of the year. If you delete the accounts earlier, that can create additional disruptions.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Partner with professionals who understand the chart of accounts</h2>



<p>Financial data and financial reporting are an important addition to any small business and can be harvested from many areas, including the following: </p>



<ul>
<li>Expense accounts</li>



<li>Asset accounts</li>



<li>Balance sheet accounts</li>



<li>Equity accounts</li>



<li>Financial accounts</li>



<li>Liability accounts</li>



<li>Revenue accounts</li>



<li>Sub-accounts</li>
</ul>



<p>A chart of accounts isn't required, but the valuable insights it provides can contribute to critical data-backed decision-making for your small business. However, creating and managing a chart of accounts is often too much for many busy owners and entrepreneurs to handle, which is why so many of them trust 1-800Accountant, America's leading virtual accounting firm for small businesses, <a class="link" href="https://1800accountant.com/blog/outsourced-bookkeeping-guide">for their needs</a>.</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for the chart of accounts</a>, robust <a class="link" href="https://1800accountant.com/blog/catch-up-bookkeeping">educational content</a>, or any of our professional accounting services, we have the solution you need at a price that fits within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

You may be wondering: &#8220;Why create a chart of accounts?&#8221; Even a basic chart of accounts is an excellent way to view your business&#8217;s finances. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format. In this [&hellip;]

chart-of-accounts-a-comprehensive-guide_blog-header

Chart of Accounts: A Comprehensive Guide with Real-World Examples

<p>Watching your business grow is thrilling – you finally see the results of your hard work.&nbsp;&nbsp;</p>
<p>Unfortunately, the more your business grows, the more time your <a class="link" href="https://1800accountant.com/blog/small-business-bookkeeping">bookkeeping</a> takes.&nbsp;</p>
<p>You might spend hours categorizing transactions, chasing receipts, and compiling reports. Perhaps you dread filing tax returns because of your unorganized spreadsheets. Accurate bookkeeping is essential to your business, but you probably prefer to focus on improving sales.&nbsp;&nbsp;</p>
<p>Did you know a simple solution can help you reclaim hours of your time?&nbsp;</p>
<p>Outsourced bookkeeping can save you time and keep your business compliant. The service is increasingly popular with business owners because of its cost-effectiveness and flexibility.</p>
<p>Keep reading to learn how outsourced bookkeeping can benefit your business.</p>
<h2>What Is Outsourced Bookkeeping?</h2>
<p>Outsourced bookkeepers are <a class="link" href="https://1800accountant.com/services/bookkeeping">third-party service providers</a> who categorize transactions and reconcile account balances. Bookkeepers perform back-office tasks to organize financial data. Day-to-day responsibilities include the following:&nbsp;</p>
<ul>
  <li><strong>Categorize transactions</strong> such as receipts and business <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">expenses</a></li>
  <li><strong>Track invoices and record revenue</strong> upon payment</li>
  <li><strong>Reconcile accounts</strong> regularly and timely</li>
  <li><strong>Prepare financial reports</strong> for lenders or investors</li>
  <li><strong>Compile tax documentation</strong> to support the return filing process</li>
</ul>
<p>Bookkeepers do not typically analyze financial data for trends (accountants perform analyses), but some bookkeepers can help you pinpoint weak cash flow or high spending.&nbsp;</p>
<h2>Why Outsource Bookkeeping?&nbsp;</h2>
<p>Business owners outsource bookkeeping services for various reasons. The benefits of outsourced bookkeeping services include cost-effectiveness, scalability, and improved compliance.&nbsp;&nbsp;</p>
<h3>Reason #1: Cost Savings and Financial Efficiency</h3>
<p>Hiring a full-time bookkeeper requires interviewing, training a new employee, and paying a full-time salary.</p>
<p>The <a class="link" href="https://www.bls.gov/ooh/office-and-administrative-support/bookkeeping-accounting-and-auditing-clerks.htm#tab-5" target="_blank" rel="noreferrer noopener">average annual bookkeeper salary</a> is about $46,000. Additional compensation expenses include benefits, taxes, and office equipment. Employers also suffer productivity loss during employees’ paid time off.&nbsp;</p>
<p>In comparison, outsourced bookkeeping offers cost savings and financial efficiency. Bookkeeping firms only charge you for their services, <a class="link" href="https://1800accountant.com/blog/how-to-find-a-virtual-bookkeeper">sparing you the overhead costs</a>.&nbsp;</p>
<h3>Reason #2: Access to Expertise</h3>
<p>Your industry expertise supports your business. Unless you’re a bookkeeper by trade, you may lack bookkeeping mastery. You’ll benefit from partnering with bookkeeping professionals who provide accurate reconciliations.</p>
<p>Outsourced bookkeeping firms employ teams of experienced professionals. Service providers tailor their solutions to your company’s facts, and you’ll <a class="link" href="https://1800accountant.com/services/bookkeeping">partner with individuals who have industry- and location-specific experience</a>.&nbsp;</p>
<p>Working with experienced outsourced bookkeepers means receiving accurate categorization and account reconciliations.&nbsp;</p>
<h3>Reason #3: Time Management and Focus</h3>
<p>Outsourced bookkeepers allow you to run your business without interruption.&nbsp;</p>
<p>Instead of adding account reconciliations to your workload, you can meet with clients or manage your team. Do you delegate bookkeeping responsibilities to team members? Free your employees from multitasking so they can concentrate on their primary duties.&nbsp;</p>
<p>Outsourced bookkeeping services benefit your business by offloading your back-office work to experienced professionals. You can focus on satisfying your customers.&nbsp;</p>
<h3>Reason #4: Scalability and Flexibility&nbsp;&nbsp;</h3>
<p>As your business changes, so do your bookkeeping needs.&nbsp;</p>
<p>If your company doubles its sales next year, you’ll need a service provider to accommodate rapid growth. If your business is seasonal, you may need less help during off-cycles.&nbsp;&nbsp;</p>
<p>Outsourced bookkeepers can seamlessly scale their efforts to match your business requirements. Bookkeeping firms employ <a class="link" href="https://1800accountant.com/services/bookkeeping">teams of professionals</a> who can readily adapt to your business growth. Their flexibility ensures your business receives the appropriate attention at any stage.</p>
<h3>Reason #5: Smooth Compliance</h3>
<p>Outsourced bookkeepers reconcile your accounts year-round.&nbsp;</p>
<p>Timely financial statements help you prepare for seamless tax filings and payroll reports. Instead of scrambling to compile reports, you can rely on up-to-date documentation. You’ll also be prepared to respond to a payroll or IRS audit.&nbsp;</p>
<p>Outsourced bookkeeping supports accurate and timely business compliance.&nbsp;</p>
<h2>Pros and Cons of Outsourced Bookkeeping</h2>
<div class="rte-table-container">
  <table>
    <thead>
      <tr class="table-data-container">
        <td class="cell-0">Pros</td>
        <td class="cell-0">Cons</td>
      </tr>
    </thead>
    <tbody>
      <tr class="table-data-container">
        <td><strong>Cost-effectiveness</strong>: Outsourced bookkeeping reduces employment costs, equipment expenses, and payroll taxes.<br /><br /><strong>Expertise</strong>: You gain access to third-party professionals and industry specialists.<br /><br /><strong>Time management</strong>: You can reclaim time and energy to focus on business growth.<br /><br /><strong>Flexibility</strong>: You can continuously refine your bookkeeping needs to adapt to your growing business.<br /><br /><strong>Compliance</strong>: Your provider organizes your data in preparation for tax returns, payroll filings, and financial reporting.<br /></td>
        <td><strong>Loss of direct control</strong>: You need to rely on your bookkeeper's expertise.<br /><br /><strong>Security concerns</strong>: Sharing sensitive financial data with a third party presents privacy risks.<br /><br /><strong>Potential communication challenges</strong>: Working with service providers requires clear communication to avoid misunderstandings.<br /><br /><strong>System integration</strong>: You may need to learn to use new bookkeeping software.<br /></td>
      </tr>
    </tbody>
  </table>
</div>
<h2>Who Benefits from Outsourced Bookkeeping Services?</h2>
<p>How do you know if you should use outsourced bookkeeping services?&nbsp;</p>
<p>Think through the following criteria and consider whether the descriptions fit your situation. Outsourced bookkeeping may work well with your business if one or more items apply to your company.</p>
<ul>
  <li>You and your team members have minimal experience categorizing transactions or <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">reconciling</a> accounts.&nbsp;</li>
  <li>Your business processes a high volume of transactions each month</li>
  <li>Your company sells numerous products or service offerings.</li>
  <li>You purchase goods and services from multiple vendors or service providers.&nbsp;</li>
  <li>You and your employees have low bandwidth for bookkeeping responsibilities.</li>
</ul>
<p>Still not sure whether outsourcing bookkeeping services is right for you? <a class="link" href="https://1800accountant.com/services/bookkeeping">We’re happy to talk through your situation and help you decide</a>.</p>
<h2>How Much Do Outsourced Bookkeeping Services Cost?</h2>
<p>Outsourced bookkeeping costs vary depending on each company’s facts.&nbsp;</p>
<p>Does your business complete hundreds of transactions each month? Perhaps you sell services to a small number of customers?&nbsp;</p>
<p>The more complex your operations, the more your outsourced bookkeeping services will cost. Alternatively, simple enterprises require less time-intensive bookkeeping work and fewer fees.</p>
<p>Bookkeeping service providers offer varying pricing arrangements. Rates depend on your company’s complexity and the firm’s level of expertise. Pricing arrangements include hourly or flat-rate pricing:&nbsp;</p>
<ul>
  <li><strong>Hourly fees</strong> may range from $25-$100+ per hour. You’ll incur charges for each hour your bookkeeper assists your business.</li>
  <li><strong>Flat pricing</strong> represents a set rate each month. You’ll have <a class="link" href="https://1800accountant.com/services/bookkeeping">full transparency</a> about your monthly fees upfront.</li>
</ul>
<p>We recommend <a class="link" href="https://1800accountant.com/services/bookkeeping">consulting with an outsourced bookkeeping service provider</a> for an estimated cost.</p>
<h2>Choosing the Right Outsourced Bookkeeping Solution for Your Business</h2>
<p>You understand accurate bookkeeping is vital to your small business. How do you know which outsourced bookkeeping solution is the best fit?&nbsp;</p>
<p>Review the benefits of each option to decide the right arrangement for your business.&nbsp;</p>
<div class="rte-table-container">
  <table>
    <thead>
      <tr class="table-data-container">
        <td class="cell-0">Bookkeeping Solution</td>
        <td class="cell-0">Benefits of This Solution</td>
      </tr>
    </thead>
    <tbody>
      <tr class="table-data-container">
        <td><strong>Full-time bookkeeping</strong><strong> employee</strong></td>
        <td>A full-time bookkeeper intimately understands your company’s facts.<br /><br />Your bookkeeper focuses solely on your business.</td>
      </tr>
      <tr class="table-data-container">
        <td><strong>Local </strong><strong>outsourced bookkeeping</strong></td>
        <td>A local service provider can attend in-person meetings at your office.<br /><br />Local bookkeepers can handle paper receipts and statements.</td>
      </tr>
      <tr class="table-data-container">
        <td><strong>Virtual </strong><strong>outsourced bookkeeping</strong></td>
        <td>A <a class="link" href="https://1800accountant.com/blog/how-to-find-a-virtual-bookkeeper">virtual outsourced bookkeeper</a> can balance your books anytime, not just during business hours.<br /><br />Cloud-based systems can automatically connect to your business accounts for real-time updates.<br /><br />Your bookkeeper can consistently provide up-to-date reports when you need them.<br /><br />Virtual outsourced bookkeepers can scale their services as your business grows.<br /><br />Your business avoids overhead expenses and enjoys maximum cost-effectiveness.</td>
      </tr>
    </tbody>
  </table>
</div>
<h2>Partner with Us for Expertise with All of Your Bookkeeping Needs</h2>
<p>Hiring 1-800Accountant for outsourced bookkeeping allows you to run your business without pausing for paperwork.&nbsp;</p>
<p>We provide accurate account reconciliations and timely transaction categorization. Further, our flat pricing gives you transparency on monthly fees. <a class="link" href="https://1800accountant.com/services/bookkeeping">Rely on our bookkeeping expertise</a> to keep your business compliant with tax and reporting requirements.&nbsp;</p>
<p>Partner with 1-800Accountant to unlock your potential for business success.&nbsp;</p>

Watching your business grow is thrilling – you finally see the results of your hard work.&nbsp;&nbsp; Unfortunately, the more your business grows, the more time your bookkeeping takes.&nbsp; You might spend hours categorizing transactions, chasing receipts, and compiling reports. Perhaps you dread filing tax returns because of your unorganized spreadsheets. Accurate bookkeeping is essential to [&hellip;]

A smiling woman wearing a headset sits by a window, next to text reading "comprehensive guide to outsourced bookkeeping.

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Outsourced Bookkeeping: The Ultimate Guide

<p>As your small business grows, so too do your responsibilities. It can be increasingly difficult to devote time to these obligations as your business is on the rise, with tasks like bookkeeping often falling by the wayside.</p>



<p>Maintaining accurate and up-to-date financial records is vital to a healthy small business. Without them, it's difficult to pinpoint your business's financial health and has you making critical decisions in the dark. This slows the growth and momentum you worked so hard to achieve.</p>



<p>If you've fallen behind and want to learn how to clean up messy bookkeeping, don't worry. Catch-up bookkeeping is your lifeline. In this guide, we'll dive into how to catch up on bookkeeping for your small business. Specifically, we'll cover what catch-up bookkeeping is, why it's crucial for small businesses struggling to manage their books, and step-by-step instructions on how to get current and stay that way. </p>



<h2>What is catch-up bookkeeping?</h2>



<p>Catch-up bookkeeping is sometimes referred to as bookkeeping clean-up, bookkeeping catch-up, clean-up bookkeeping, and catch-up accounting. Whichever name you prefer, they mean the same thing.</p>



<p>Catch-up bookkeeping services involve reviewing, updating, and organizing your small business's financial records. The immediate benefits of this practice lie in a better understanding of your business's financial health while gaining the ability to make vital data-backed decisions that will impact your business for years to come. Accurate, up-to-date bookkeeping also makes identifying growth opportunities easier, isolating areas of your business that need improvement, and minimizing your annual tax burden.  </p>



<p>The circumstances of why you might have fallen behind don't matter for catch-up bookkeeping to take effect. There may have been a project crunch, or you were stuck in an employee training loop or endless, exhausting meetings. Whether your books are behind by months or years, catch-up bookkeeping is the solution you need to move forward.</p>



<h2>Why is catch-up bookkeeping important?</h2>



<p>When you neglect your books, you lose perspective on your business's financial health, which costs you your ability to compete effectively. But there are other consequences, including financial penalties and increased IRS scrutiny, to grapple with. Catch-up bookkeeping keeps more money in your pocket by ending these snowballing issues.</p>



<p>And the benefits don't stop there. Catch-up bookkeeping puts you in control of your finances, makes it much easier to prepare quarterly estimated taxes and year-end returns, and optimizes your small business cash flow. </p>



<p>Out-of-date books are good for only one constituency: your competition.&nbsp;</p>



<h2>Steps to implement catch-up bookkeeping for your business</h2>



<p>There are <a class="link" href="https://1800accountant.com/blog/small-business-bookkeeping">steps you can take</a> if you prefer to catch your books up yourself. This bookkeeping cleanup checklist will show you how to fix bad bookkeeping.&nbsp;</p>



<h3>1. Evaluate your current financial situation</h3>



<p>You must evaluate your small business's financial status as you prepare to catch your books up. Focus on regularly reviewing credit card and bank statements, looking for irregularities, and scanning for other activities that might be out of the norm. </p>



<p>You'll do this to ensure you pay the correct amount each month by avoiding duplicate payments, eliminating unused subscriptions and ongoing fees, and sidestepping fraud. Keeping up with your financial situation will save you time and money in the long term and help avoid the need for catch-up bookkeeping in the future!<br></p>



<h3>2. Organize and categorize past financial data</h3>



<p>Once you understand your financial status, you must organize and categorize that data. Focus on organizing receipts and invoices where you can access them when needed. Using accounting software, such as 1-800Accountant's ClientBooks, is among the quickest and most secure methods of categorizing and storing your data.</p>



<p>An important part of this step is not only categorizing your financial data but putting protocols in place centered around review and authorization. This way, you can catch mistakes before they become catastrophic errors.<br></p>



<h3>3. Reconcile financial records with bank statements&nbsp;</h3>



<p>You will want to ensure that the data you've organized is accurate. Do this by checking your work against your bank statements. This ensures your transactions are correct and allows you to catch any mistakes that may have been made in previous steps. </p>



<p>The faster you're able to identify issues and discrepancies, the better. This step can also help you establish access to cash reserves and critical protocols focusing on your small business's payment authorization system. </p>



<h3>4. Adjusting financial reports</h3>



<p>Before your books are fully caught up, you must make necessary adjustments to your financial reports. This could be an involved process or as simple as separating business and personal accounts.</p>



<p>You will also want to adjust reports detailing payments to contractors and full-time employees. Some common forms you need to detail on these reports include W-2, W-9, and 1099. The forms you'll use will depend on the employment status of the professionals you're compensating.   </p>



<h3>5. Implement a system to avoid future bookkeeping backlog</h3>



<p>Falling behind on your books is no fun, so you'll want to avoid it in the future. Do this by setting aside time to update your books at least once a week. A little bookkeeping each week can save you from a lot of pain later on.</p>



<p>You'll also want to save time by automating this process as much as possible. This works wonders in capturing receipts and other data that used to be implemented manually. You should also adhere to the practices and protocols you've created in the previous steps to ensure your books are always current. </p>



<h2>The role of a professional in catch-up bookkeeping</h2>



<p>Catch-up bookkeeping aims to ensure your small business's books are current and error-free. While doing it yourself is straightforward on paper, it can be much more complicated in practice. Many small business owners will hire an expert to address their bookkeeping issues.</p>



<p>When you hire a professional to catch you up, they'll take over and handle your books for you. Just provide access to your financial information, and they'll begin the time-consuming process detailed above. Your books will be caught up, and other money-saving deductions may be identified, adding to your overall savings.</p>



<p>If you have the budget, hiring a professional to catch your books up provides excellent value and peace of mind. </p>



<h2>How much does catch-up bookkeeping cost?</h2>



<p>Catch-up bookkeeping prices and fees can vary. You might be charged an hourly, monthly, or flat fee for these services. Depending on how far back they'll have to go, you could budget for as little as a few hundred dollars into the thousands to complete the job. It depends on your needs and the severity of the situation. </p>



<p>While pricing is undoubtedly important, you shouldn't <a class="link" href="https://1800accountant.com/blog/how-to-find-a-virtual-bookkeeper">choose based on pricing alone</a>. Research their qualifications, read reviews, and talk to other small business owners who have used professional services for their catch-up bookkeeping needs.</p>



<p>Affordability is important, but you'll do more harm than good if you hire a person or company who lacks the necessary qualifications to update your books. </p>



<h2>1-800Accountant catches you up and keeps you ahead.&nbsp;</h2>



<p><br>Without a solid foundation, your house will eventually fall. The same can happen to your small business without a strong financial foundation. That's why it's important to take control of your finances immediately by getting help with bookkeeping.</p>



<p>Catching your books up yourself can be intimidating and set you back further if you hire the wrong professional or company. That's why many owners and entrepreneurs trust the experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, for catch-up bookkeeping. </p>



<p>Our <a class="link" href="https://1800accountant.com/services/bookkeeping">catch-up bookkeeping service</a> is affordable and error-free, giving you peace of mind and more time to devote to your business. In addition to that, we also offer <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">educational content</a>, and more to help you stay ahead. Our professional accounting solutions support your business operations at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.</p>

As your small business grows, so too do your responsibilities. It can be increasingly difficult to devote time to these obligations as your business is on the rise, with tasks like bookkeeping often falling by the wayside. Maintaining accurate and up-to-date financial records is vital to a healthy small business. Without them, it&#8217;s difficult to [&hellip;]

Man reviewing financial documents and using a calculator, with text "catch-up bookkeeping what it is and how it works" on a teal background.

catch-up-bookkeeping

Catch-Up Bookkeeping: Understanding What It Is and How It Works

<p>Bank reconciliation is a useful tool if you want to know <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">how to keep good financial records</a>. It can assist you in significant ways to protect your finances. It can also help you determine whether there are errors in your transactions and, if so, how you can correct them.</p>



<p>However, there are several things that you should know about bank reconciliations. Continue reading to learn about the bank reconciliation process and how it can help you.</p>



<h2>What is Bank Reconciliation?</h2>



<p>Bank reconciliations occur when you compare your financial statements to that of your banking institution. This will help you notice potential discrepancies, and it will also allow you to determine how the discrepancy occurred.&nbsp;</p>



<h2>The Benefits of Bank Reconciliation</h2>



<p>Bank reconciliation is essential for <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-crash-course-record-keeping-small-businesses">small business bookkeeping</a> and offers a myriad of benefits that contribute to the sound financial management of your accounts.</p>



<ul>
<li><strong>Detecting Errors and Discrepancies – </strong>Bank reconciliation acts as a detective, unveiling errors, and discrepancies between each bank record and bank statement. By identifying these discrepancies, you can rectify errors promptly and maintain the accuracy of your financial records.</li>



<li><strong>Preventing Fraud –</strong> Bank reconciliation serves as a powerful tool in the prevention and detection of fraudulent activities. By regularly comparing your records with the bank statement, you can identify unauthorized transactions and take immediate action to protect your finances.</li>



<li><strong>Ensuring Accuracy of Financial Statements – </strong>Accurate financial statements are essential for making informed business decisions. Through bank reconciliations, you ensure that your financial statements reflect the true financial position of your accounts, providing a reliable foundation for decision-making.</li>



<li><strong>Monitoring Cash Flow – </strong>Bank reconciliation allows you to monitor your cash flow effectively. By reconciling your bank transactions, you gain insights into inflows and outflows of funds, helping you make informed decisions regarding budgeting and cash management.</li>



<li><strong>Maintaining Trust and Transparency – </strong>Bank reconciliation demonstrates your commitment to financial integrity. By reconciling your accounts, you establish transparency and trust with stakeholders such as investors, creditors, and auditors, fostering positive relationships and instilling confidence in your financial management.</li>
</ul>



<h2>The Bank Reconciliation Process</h2>



<p>The bank reconciliation process comprises several steps:</p>



<h3>1. Gather Your Tools</h3>



<p>You’ll need each bank statement to complete a bank reconciliation. You should have statements for the most recent month, the previous month, and closing balances.</p>



<h3>2. Start with the Opening Balances</h3>



<p>Begin your bank reconciliation report by comparing your opening bank statement balance with the corresponding figure in your records. Any differences should be noted, as they may be crucial in identifying discrepancies later in the process.</p>



<h3>3. Record Deposits and Credits</h3>



<p>Dive into the sea of transactions, capturing each deposit and credit recorded in your bank statement balance. Compare them meticulously to your records, ensuring that no transaction goes unnoticed. Make an adjustment for any discrepancies, noting the reasons for variations.</p>



<h3>4. Account for Withdrawals and Debits</h3>



<p>With every deposit and credit accounted for, it's time to tackle the withdrawals and debits. Scrutinize each cleared transaction, matching it with your records to ensure accuracy. Don't let any discrepancies slip through.</p>



<h3>5. Reconcile Outstanding Checks</h3>



<p>Compare the outstanding checks in your records with those in your bank statement, marking off any that have since cleared. Note any discrepancies and make an adjustment accordingly.</p>



<h3>6. Factor in Bank Charges and Fees</h3>



<p>Take a close look at your bank statement, identifying any charges and fees imposed by the bank. Compare them with your records, adjusting the figures as necessary.</p>



<h3>7. Unveil the Closing Balance</h3>



<p>As the reconciliation process nears its end, compare the closing balance on your bank statement with your records. If the figures align, that’s great news. However, if discrepancies persist, delve deeper into the differences, ensuring no stone is left unturned.</p>



<h3>8. Make Necessary Adjustments</h3>



<p>With a keen eye for detail, scrutinize the discrepancies uncovered during the bank reconciliation process. Rectify any errors in your records, updating them to reflect the accurate financial state of your accounts. Remember, precision and accuracy are the pillars of financial stability.</p>



<h2><strong>Additional Bank Reconciliation Tips</strong></h2>



<p>As you complete the bank reconciliation report, you should look for any administrative problems. Administrative errors can cover a wide range of issues from banking institutions and customers. You’ll want to:</p>



<ul>
<li>Avoid bank fees for insufficient funds</li>



<li>Avoid using lines of credit</li>



<li>Avoid bounced checks</li>



<li>Catch any banking errors</li>



<li>Keep track of outstanding checks</li>



<li>Know if customer payments have bounced or failed</li>



<li>Know the cash balance in each bank account</li>
</ul>



<p>As you complete bank account reconciliation, you should look for potentially fraudulent activities. This may include:</p>



<ul>
<li>Changed checks</li>



<li>Duplicated checks</li>



<li>Missing deposits</li>



<li>Unauthorized cash withdrawals</li>



<li>Unauthorized transfers</li>
</ul>



<h2>Work with the Pros</h2>



<p>Bank reconciliation is one of the most critical bookkeeping duties. Work with<a class="link" href="https://1800accountant.com/products/bookkeeping"> </a>the pros who specialize in <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for small businesses </a>to ensure that you don’t have and problems.</p>

Bank reconciliation is a useful tool if you want to know how to keep good financial records. It can assist you in significant ways to protect your finances. It can also help you determine whether there are errors in your transactions and, if so, how you can correct them. However, there are several things that [&hellip;]

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bank-reconcilliation_blog-header

Bank Reconciliation: Everything You Need to Know

<p>Employees can essentially trust their employers to handle much of the regular work of bookkeeping for them. Their employer keeps track of their income, withholds wages to pay taxes, and then sends regular reports on all of that.</p>



<p>Freelancers, on the other hand, are on their own. That’s why bookkeeping for freelancers is critical, even if it doesn’t seem like it. It’s the paperwork that lets the work happen and makes sure you get paid. No one else is going to make sure the numbers add up, and your account gets its deposit at the end of the day.</p>



<p>Freelance bookkeeping can be a challenge if it isn’t handled early and properly. Thankfully there are some supporting strategies freelancers can use to have a smooth bookkeeping experience. Finding an effective system and process for managing your accounting can help save time and money, not only for calculating expenses, compiling invoices, and paying quarterly taxes but throughout the year.</p>



<p>While there are many ways to go about bookkeeping for your independent business, freelancers should consider some things first. For example, keeping track of every financial transaction is crucial, and saving may be very helpful when it’s time to pay taxes. Here’s a quick guide to all of these basic things each freelancer should know about bookkeeping.</p>



<h2>Why is Bookkeeping Important for Freelancers?</h2>



<p>Bookkeeping allows freelancers to stay organized with their finances. If you <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">keep good financial records </a>and <a class="link" href="https://1800accountant.com/blog/cash-flow-management">monitor your cash flow</a>, you’ll be able to deal with problems that come up and easily prove your eligibility for any lines of credit you might need. </p>



<p>Keeping track of expenses, income, and invoices will save time when tax season approaches. For freelancers, like for all small businesses, you have regular obligations to pay income taxes quarterly and then file tax returns at the end of the year. Having all of that information accurately recorded and easy to find will make the process easy and efficient.</p>



<p>Bookkeeping is essential for a lot of different reasons. If you don’t get paid properly for your time, there’s no one else who will notice the issue and address it, and you need the records to give you that information and prove it to your customer. Bookkeeping can also help freelancers avoid penalties and have an easier experience finding documentation if audited.</p>



<h2>Essential Bookkeeping Tips for Freelancers</h2>



<p>These guidelines are the fundamental basis of any freelancer or small company’s bookkeeping. If you aren’t already using these guiding tips, you should implement them as soon as possible to decrease the chance of mistakes and to give your business a solid footing.&nbsp;</p>



<p>While what is best for you will vary depending on the size and type of your freelance business, every business owner should consider what these look like for their own work.&nbsp;&nbsp;&nbsp;</p>



<h3>Keep Financial Documents</h3>



<p>Don’t get rid of any financial documents. Your company’s records are built on the financial documents you keep, whether you keep them in physical or digital form.&nbsp;</p>



<p>Keeping critical financial statements and records can allow you to examine your finances in several ways, watching for trends and planning more efficiently for the future. Two of the most important documents for freelancers are <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-what-is-a-balance-sheet">balance sheets</a> and <a class="link" href="https://1800accountant.com/blog/how-to-read-profit-and-loss-statement">profit and loss statements</a>. Each <a class="link" href="https://1800accountant.com/blog/cash-flow-statement">cash flow statement</a> and invoice is also useful to keep.&nbsp;</p>



<h3>Separate Personal and Professional Assets</h3>



<p>It may be tempting for freelancers to simply use their personal bank accounts for business purposes. Still, it can be very useful to separate your business assets from your personal ones, and this is absolutely crucial if your business involves a lot of business expenses.&nbsp;</p>



<p>Opening a business bank account solely for professional assets lets you track professional expenses and income without constantly having to sort through both piled together. This will also help immensely during tax season. If all of your company costs are on your business credit card, it becomes simple and easy to <a class="link" href="https://www.keepertax.com/freelancer-tax-deductions">claim deductions for those expenses</a>.&nbsp;&nbsp;</p>



<h3>Track Your Income</h3>



<p>Freelancers should track everything, including their expenses and taxes, but you should track your income most of all. Track how much you are owed and how much you are paid so that you can ensure those numbers match up.&nbsp;</p>



<p>Then your income numbers will help you assess how to proceed with your business in the future, and you’ll have it ready for <a class="link" href="https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes" target="_blank" rel="noreferrer noopener">paying quarterly estimated taxes to the IRS</a> and completing your tax return. You can use bank deposits, software, or spreadsheets to further track your income.</p>



<h2>Long-Term Bookkeeping Tips for Freelancers</h2>



<p>Now that you have the foundations for your bookkeeping system, you can move on to more detailed pieces of the process. These tips will help you improve your system and process to get the most out of your bookkeeping.&nbsp;</p>



<h3>Create an Organized System</h3>



<p>Freelance workers should create an organized system to track expenses and income, whether it’s a filing system or a set of spreadsheets on your computer. There needs to be a straightforward process you follow so that nothing falls through the cracks. In case of an audit, you’ll want to save pictures of receipts if at all possible as well.&nbsp;</p>



<p>If you get paid for your time, you need to find an organized and easy way to do time tracking to avoid wasting time or missing out on income.&nbsp;</p>



<h3>Improve Your Invoices&nbsp;</h3>



<p>You don’t get paid without invoices, so it’s essential to make sure your invoices and invoicing system are efficient and effective.</p>



<p>Each <a class="link" href="https://1800accountant.com/blog/invoice">small business invoice</a> should include your contact information, an invoice number, the issue date, and the due date. Other important things to include are the goods and services provided and the total due for those goods and services.</p>



<p>You should also provide information about how you'll accept payments (e.g., by check, through your bank, or via PayPal). You want your invoice to contain all the information necessary for the payment to happen. If getting payments on time is an issue, you should also include a clearly stated policy about incentives or penalties for payments before or after the deadline.&nbsp;</p>



<p>An easy way to make this process smoother is to set up invoicing software to put all this information together and send invoices for you. This will help keep you on schedule as well, because if you send out invoices late or at unpredictable times, then that’s the same way they’ll get paid.&nbsp;&nbsp;</p>



<h3>Record All Expenses</h3>



<p>It’s important to keep both income and expense reports as a part of your bookkeeping, as both will be essential for your tax returns. Keeping track of all your legitimate business expenses will let you <a class="link" href="https://1800accountant.com/blog/10-ways-to-deduct-business-expenses-as-a-freelancer">deduct business expenses as a freelancer</a> and reduce your tax liabilities.&nbsp;&nbsp;</p>



<p>You can claim tax deductions for supply costs, as well as rent, travel, and vehicle expenses related to your business. Any professional dues, employee wages, and healthcare premiums may be deductible. If you work from home, you may also be able to deduct many expenses related to your dedicated home office.&nbsp;</p>



<p>Freelancers can also benefit from setting a budget to monitor their spending. A carefully crafted budget gives you a clear framework for planning and assessing your income and expenses over time.&nbsp;&nbsp;</p>



<h3>Build Up Savings</h3>



<p>Saving money as a freelancer is important in case there is an unforeseen business expense or penalty. This is another way budgeting and monitoring your cash flow will help. By planning ahead, you can ensure you have money to spare when you need it.&nbsp;</p>



<p>It’s a healthy standard to save about 30% of your income if your tax bill is higher than expected. Freelancers may want to save money for tax payments early, if possible, to avoid saving more significant amounts later.</p>



<h3>Find Accounting Software</h3>



<p>For everything from sending invoices and payment processing to recording expenses and receipts, accounting software can help if you want to know <a class="link" href="https://1800accountant.com/blog/are-you-wasting-time-on-small-business-bookkeeping">how to streamline accounting processes</a> and reduce human error.&nbsp;</p>



<p>These software programs will help you collect payments, estimate and file quarterly taxes, track expenses, and more. Software for freelancers like this can also help you plan financial reports, invoicing, and payroll.</p>



<p>There are all sorts of accounting software programs available for self-employed business owners.&nbsp; Accounting software like Quickbooks Self-Employed usually requires a monthly or yearly subscription, so you should discuss with an accountant to see what kind of program fits your needs best before you commit.&nbsp;</p>



<h3>Set Up Tax Payments</h3>



<p>Having complete records will make filling out and filing tax returns a breeze, but that still leaves you with estimated quarterly income tax payments throughout the year. You should be planning ahead to make these payments on time and registering with the IRS to make the process smoother.&nbsp;</p>



<p>Estimated taxes are due quarterly, and there may be penalties if you underpay or pay after the deadline. If you owe a small enough amount at the end of the year, or you’ve paid enough income taxes elsewhere, you might be able to avoid these quarterly payments and pay an annual tax.&nbsp;</p>



<p><a class="link" href="https://1800accountant.com/blog/calculate-small-business-taxes">Calculate your small business taxes</a> ahead of time, so you know what you need to do to keep up with your obligations throughout the year.&nbsp;</p>



<h2>Work With a Professional Bookkeeper</h2>



<p>You don’t have to be a big business to hire an accountant. Even a freelancer can afford and benefit from working with a professional for your <a class="link" href="https://1800accountant.com/services/industry/freelancer-self-employed">freelance accounting needs</a>. The expert doesn’t have to be your full-time employee to help you improve your system and get your bookkeeping process up and running.&nbsp;</p>



<p>You don’t have to figure it out on your own. <a class="link" href="https://1800accountant.com/services/bookkeeping">Bookkeeping for small businesses</a> can address all of your needs, along with the<a class="link" href="https://1800accountant.com/services/bookkeeping"> </a>professional bookkeepers at 1-800Accountant.</p>

Employees can essentially trust their employers to handle much of the regular work of bookkeeping for them. Their employer keeps track of their income, withholds wages to pay taxes, and then sends regular reports on all of that. Freelancers, on the other hand, are on their own. That’s why bookkeeping for freelancers is critical, even [&hellip;]

A person using a calculator with financial documents, a notepad, and a laptop, under the text "freelance bookkeeping: everything you need to know.

Freelance-Bookkeeping

Freelance Bookkeeping: Everything You Need to Know

<p>Do you ever wonder about the financial health of your business or how investors perceive your company's financial stability? This comprehensive guide on creating and understanding a business balance sheet helps answer these questions. We discuss the complexities of balance sheets, highlight their purpose, and the step-by-step process of creating one.</p>



<p>You'll discover how balance sheets are instrumental in tracking your company's assets, liabilities, and equity over time. This knowledge provides insights into your company's net worth and strengthens your strategy when applying for investment opportunities. Continue reading as we empower you with tools to elevate your business financial understanding.</p>



<h2>What Is a Business Balance Sheet?</h2>



<p>A balance sheet is a financial statement that provides a snapshot of a business's financial position at a specific moment in time. It details the company's assets (what it owns), liabilities (what it owes), and shareholders' equity (the net worth or capital of the company). These three components provide valuable insights into a company's financial health and operational efficiency.</p>



<p>Balance sheets can also serve as documentation if you are applying for investment opportunities.</p>



<h2>How Do You Create a Balance Sheet?</h2>



<p>There are several steps involved to create your <a class="link" href="https://online.hbs.edu/blog/post/how-to-prepare-a-balance-sheet" target="_blank" rel="noreferrer noopener">balance sheet</a>:</p>



<h3>Determine the reporting date and period</h3>



<p>In the first step, you'll determine the reporting date. For many companies, this is typically the last day of a <a class="link" href="https://www.investopedia.com/terms/q/quarter.asp" target="_blank" rel="noreferrer noopener">fiscal quarter</a>. For companies that report their earnings annually, this is usually December 31.</p>



<h3>Calculate assets</h3>



<p>In the second step, you'll calculate current and long-term assets. You should arrange both categories along with their sub-categories. After you write the amounts, add them together to determine your assets.</p>



<h3>Calculate liabilities</h3>



<p>In the third step, you'll calculate your liabilities, both current and long-term, by summing up the amounts.&nbsp;</p>



<h3>Calculate shareholder equity</h3>



<p>In the fourth step, you'll calculate shareholder equity. Like assets and liabilities, there are different sub-categories of equity that you'll reference, such as earnings and stocks. After you write the amounts, add them together to determine total equity.</p>



<h3>Compare equity and liabilities to assets</h3>



<p>In the fifth step, you'll combine equity and liabilities. The sum is the number that you'll compare against your assets to determine if your finances are balanced.</p>



<h2>Importance of a Balance Sheet?</h2>



<p>Creating and using balance sheets have<strong> </strong><a class="link" href="https://smallbusiness.chron.com/advantages-balance-sheet-11490.html" target="_blank" rel="noreferrer noopener">fundamental advantages</a>. After creating a balance sheet, you'll determine the financial status of your company. This can be helpful if you're planning to save additional funding for business needs or emergencies.&nbsp;</p>



<p>A second reason you'll need a balance sheet is that it is useful for potential lending opportunities. As you create balance sheets over consecutive quarters, you'll have detailed records showing your company's assets, equity, and liabilities. This will help lenders determine whether you're more likely to pay and receive investments from lenders.</p>



<p>Finally, the balance sheets structure allows you to see upcoming liabilities in the forms of short-term and long-term debt. If you create a balance sheet, you'll determine which liabilities you should address first, preventing current and future problems.</p>



<h2>What Is Included in a Balance Sheet?</h2>



<p>A balance sheet <a class="link" href="https://www.investopedia.com/terms/b/balancesheet.asp" target="_blank" rel="noreferrer noopener">includes four things</a>:&nbsp;</p>



<ul>
<li>Assets&nbsp;</li>



<li>Earnings</li>



<li>Equity&nbsp;</li>



<li>Liabilities</li>
</ul>



<p>An explanation of each element of a balance sheet follows below.</p>



<h3><strong>Equity</strong></h3>



<p>Equity is what will remain after you subtract liabilities from your assets. You'll also hear equity used interchangeably as shareholder's equity. The amount of equity that a business has is the net worth of the company.&nbsp;</p>



<h3><strong>Assets</strong></h3>



<p>Assets are what your company owns. You'll write this on the left side of your bookkeeping document. There are two types of assets: current assets and long-term assets.&nbsp;</p>



<p><a class="link" href="https://www.investopedia.com/terms/c/currentassets.asp#:~:text=Current%20assets%20represent%20all%20the%20assets%20of%20a,financial%20statements%20that%20must%20be%20completed%20each%20year." target="_blank" rel="noreferrer noopener">Current assets</a> are assets that you'll use within the next year. It comprises several categories, such as:&nbsp;</p>



<ul>
<li>Accounts receivable: Money that customers owe the company</li>



<li>Cash and cash equivalents: Assets that can become cash immediately</li>



<li>Inventory: Goods available for sale</li>



<li>Marketable securities: Assets that can become cash quickly, such as stock</li>



<li>Prepaid expenses: The value that has been paid for, such as advertising, insurance, and rent</li>
</ul>



<p><a class="link" href="https://www.investopedia.com/terms/l/longtermassets.asp" target="_blank" rel="noreferrer noopener">Long-term assets</a>, also known as non-current assets, are assets that you won't use within a year. Instead, long-term assets will benefit your company for several years.&nbsp;</p>



<p>Like current assets, long-term assets comprise several categories, such as:&nbsp;</p>



<ul>
<li>Client lists, patents, and trademarks&nbsp;</li>



<li>Fixed assets: Equipment, plant, and equipment (also known as PP&amp;E), including buildings, land, machinery, and vehicles</li>



<li>Intangible assets: Listed on balance sheets if acquired rather than developed</li>



<li>Long-term investments: Bonds, real estate, stocks (Long-term investments also include investments in other companies.)</li>
</ul>



<h3><strong>Liabilities</strong></h3>



<p>Liabilities are the money that a business owes to other parties. You'll write this on the right side of your balance sheet. This can include monthly bills, rental costs, and salaries to employees. Similar to assets, there are two types of liabilities: current liabilities and long-term liabilities.&nbsp;</p>



<p>Current liabilities are liabilities due within one year. You'll arrange these liabilities in the order of their due date. Current liabilities could include:</p>



<ul>
<li>Accounts payable</li>



<li>Bank indebtedness</li>



<li>Current portion of long-term debt</li>



<li>Customer prepayments</li>



<li>Dividends payable and others</li>



<li>Earned and unearned premiums</li>



<li>Interest payable</li>



<li>Wages payable</li>
</ul>



<p>Long-term liabilities are liabilities due beyond one year. These include:</p>



<ul>
<li>Deferred tax liability: Accrued taxes but taxes that you won't pay for another year</li>



<li>Long-term debt: Interest and principal on bonds</li>



<li>Pension fund liability: Money that businesses pay into employees' retirement accounts</li>
</ul>



<h3><strong>Earnings</strong></h3>



<p>Earnings are the last thing that you record on your balance sheet. You'll write this under the liabilities section of your bookkeeping document.&nbsp;</p>



<p>There are <a class="link" href="https://www.thebalance.com/shareholders-equity-on-the-balance-sheet-357295" target="_blank" rel="noreferrer noopener">3 areas</a> in which you can report earnings on a balance sheet:&nbsp;</p>



<ul>
<li>Capital stock: Investments of cash or other assets in exchange for common stock or preferred stock</li>



<li>Paid-in surplus: Capital from investors in exchange for stock</li>



<li>Retained earnings: Profits not distributed to shareholders as dividends but profits you'll reinvest into the business</li>
</ul>



<h2>Partner With Bookkeeping Experts</h2>



<p>Creating a balance sheet is a crucial part of operating your business, but consider working with the pros if you need more help. If you're ready to take the next step, head over to our schedule a free call with our <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping experts</a> to assist you with the process.</p>

Do you ever wonder about the financial health of your business or how investors perceive your company&#8217;s financial stability? This comprehensive guide on creating and understanding a business balance sheet helps answer these questions. We discuss the complexities of balance sheets, highlight their purpose, and the step-by-step process of creating one. You&#8217;ll discover how balance [&hellip;]

Image of a clipboard with a document labeled "balance sheets" beside financial charts, with text overlay reading "what a balance sheet is and steps to create one.

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What a Balance Sheet Is and Steps to Create One

<p>Accounts payable is central to bookkeeping. It helps small business owners determine to whom they’ll pay debts, and it’s also helpful in noting the amounts on <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-what-is-a-balance-sheet">your balance sheet</a>.</p>



<p>While you may think accounts payable only refer to short-term debt, there are some valuable things you should know. Continue reading to learn important things you should know about accounts payable as a business owner.</p>



<h2>What is Accounts Payable?</h2>



<p>Accounts payable represent the debts owed to vendors and suppliers for services and goods sold. In essence, accounts payable encompass the outstanding payments awaiting settlement, acting as a vital component of your business's financial obligations.</p>



<h2>Accounts Payable vs. Accounts Receivable</h2>



<p>Accounts payable differs from <a class="link" href="https://1800accountant.com/blog/what-is-accounts-receivable">accounts receivable</a> in a significant way: accounts payable is a liability, but accounts receivable is an asset.&nbsp;</p>



<h2>Accounts Payable vs. Trade Payables</h2>



<p>While accounts payable and trade payables are similar, there are distinct differences between the two terms.&nbsp;</p>



<p>Trade payables are also liabilities but for different purposes. Trade payables comprise money a company owes to its vendors for <a class="link" href="https://www.investopedia.com/terms/i/inventory.asp" target="_blank" rel="noreferrer noopener">inventory</a>-based goods. These goods are ready to sell or materials used to make goods that are also ready to sell.&nbsp;</p>



<p>You can list trade payables as current liabilities or long-term liabilities, but you can only list accounts payable as a current liability.&nbsp;</p>



<h2>Where to Find Accounts Payable</h2>



<p>You’ll find accounts payable in the <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-what-is-a-general-ledger">general ledger</a>, and you’ll also find accounts payable on the balance sheet.</p>



<p>You’ll find accounts payable as a current liability on the balance sheet, which is what a business owes but has yet to pay.</p>



<h2>Accounts Payable Process</h2>



<p>The accounts payable process has five steps:</p>



<ol>
<li><strong>Create the</strong><strong> </strong><strong>Purchase Order</strong></li>
</ol>



<p>The first step of the AP process begins with the purchase order, a document that signals your intent to acquire goods or services from a vendor. It will outline the details of the transaction, including quantities, prices, and delivery terms.</p>



<ol start="2">
<li><strong>&nbsp;</strong><strong>Acquire Assets</strong></li>
</ol>



<p>Next, the assets arrive. Once they arrive, inspect them with a discerning eye. Ensure they meet your expectations and match the details specified in the purchase order.&nbsp;</p>



<ol start="3">
<li><strong>Evaluate</strong><strong> Vendor Invoice&nbsp;</strong></li>
</ol>



<p>You will then receive an invoice that will request vendor payment. The vendor invoice contains information regarding the services or goods sold, their respective costs, payment terms, and contact info. Pay attention to their details.</p>



<ol start="4">
<li><strong>Process Vendor Invoice</strong></li>
</ol>



<p>Enter the realm of invoice processing, a meticulous dance of scrutiny and accuracy. Invoice processing consists of validating the invoice against the purchase order and receipts. Check for discrepancies and resolve any issues promptly, for accuracy.</p>



<ol start="5">
<li><strong>Approve and Pay</strong></li>
</ol>



<p>Once the invoice is verified and approved, it's time to make the much-anticipated payment. Update your records and prepare your resources, be it checks, electronic payments, or direct deposit. Fulfill your financial obligations, ensuring timely and accurate invoice payments to maintain healthy vendor relationships. After making the vendor payment, you’ll record how the debit decreased the liability by the amount paid.</p>



<h3>Accounts Payable Turnover Ratio</h3>



<p>The accounts payable turnover<a class="link" href="https://www.investopedia.com/terms/a/accountspayableturnoverratio.asp"> ratio</a> is a ratio used to show how frequently a company pays its accounts payable. This<a class="link" href="https://www.investopedia.com/terms/a/accountspayableturnoverratio.asp"> ratio</a> can decrease or increase over a period, with different meanings in both cases.</p>



<p><strong>Decreasing</strong> accounts payable turnover ratio shows that a small business:&nbsp;</p>



<ul>
<li>Has or is working with different payment arrangements with suppliers</li>



<li>Is taking longer to pay off its suppliers compared to previous periods</li>



<li>Is or may be in financial distress</li>
</ul>



<p><strong>Increasing</strong> accounts payable turnover ratio shows that a small business:&nbsp;</p>



<ul>
<li>Has enough working capital to pay off its debts</li>



<li>Has effective debt and <a class="link" href="https://1800accountant.com/blog/cash-flow-management">cash flow management</a>&nbsp;</li>



<li>Is paying off suppliers at a faster pace compared to previous periods</li>
</ul>



<p>While an increasing accounts payable turnover appears to be a great sign, there are other things you’ll need to know about this ratio. Short-term increasing turnover ratios are a good indicator that a small business can sustain its financial stability.&nbsp;</p>



<p>However, if a small business has an increasing turnover ratio for several periods, it could have some consequences. Small businesses in this situation may not be reinvesting their funding back into their businesses. This may cause a small business to have a lower growth rate and fewer earnings over time.</p>



<h2>AP Aging Schedule</h2>



<p>Aging schedules help small businesses see their accounts payable in a more detailed manner. Small businesses can <a class="link" href="https://www.investopedia.com/terms/a/aging-schedule.asp#:~:text=An%20aging%20schedule%20is%20an%20accounting%20table%20that,along%20with%20the%20customer%20name%20and%20amount%20due." target="_blank" rel="noreferrer noopener">organize the accounts</a> from:</p>



<ul>
<li>Current (under 30 days)</li>



<li>1-30 days past due</li>



<li>30-60 days past due</li>



<li>60-90 days past due</li>



<li>More than 90 days past due&nbsp;</li>
</ul>



<h2>How to Handle Accounts Payable</h2>



<p>There are a few ways to handle accounts payable for the best results.</p>



<h3>Use Electronic Invoicing</h3>



<p>Electronic invoicing (also known as <a class="link" href="https://www.investopedia.com/terms/i/invoice.asp" target="_blank" rel="noreferrer noopener">e-invoicing</a>) is a way that you can send bills online rather than sending paper-based invoices. By using electronic invoicing, you’ll have a few advantages:&nbsp;</p>



<ul>
<li>You can print or reproduce e-invoices when needed</li>



<li>You can receive or send e-invoices faster for business use and data collection purposes</li>



<li>You’ll be able to search and sort for dates, names, and terms within invoices</li>
</ul>



<h3>Have a Buffer</h3>



<p>A buffer in your accounts payable serves as an emergency fund, but for accounts payable. Having money on hand to pay for accounts payable will ensure you don’t have any late payments.</p>



<h3>Log into Your Calendar</h3>



<p>Finally, you’ll want to log in the payment information into a calendar. This will ensure that you won’t forget the due dates and the amount paid.</p>



<p>You’ll want to make notes of the details, such as when a payment is due, to whom it is due, and when it’s due.</p>



<h2>Is Accounts Payable an Expense?</h2>



<p>Accounts payable isn’t an expense. Accounts payable is a liability, which is what a small business owes but hasn’t paid.&nbsp;</p>



<p>Expenses are <a class="link" href="https://www.investopedia.com/terms/e/expense.asp" target="_blank" rel="noreferrer noopener">costs </a>a small business pays to create revenue.</p>



<h2>The Importance of Accounts Payable</h2>



<p>There are several benefits of accounts payable that you should be aware of:&nbsp;</p>



<ul>
<li><strong>Maintains Cash Flow – </strong>Accounts payable play a crucial role in your <a class="link" href="https://1800accountant.com/blog/cash-flow-statement">cash flow statement</a>. By carefully monitoring your payables and adhering to payment terms, you strike a harmonious balance between cash outflows and inflows, ensuring the financial vitality of your enterprise.</li>



<li><strong>Builds Strong Vendor Relationships –</strong> By diligently managing your accounts payable, you foster trust, reliability, and mutually beneficial partnerships with your vendors. Timely payments, clear communication, and a dash of appreciation create a harmonious symphony of collaboration and prosperity.</li>



<li><strong>Creates Accurate Financial Statements – </strong>Financial statements rely on accurate accounts payable data. By maintaining precise records, you ensure the credibility and transparency of your financial statements. These documents provide insights for making informed decisions and attracting potential investors.</li>
</ul>



<h2>Let Us Help You with Your Bookkeeping Needs</h2>



<p>While operating a small business has a lot of needs, it shouldn’t be stressful. We’re here to help you with <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for small businesses.</a> Work with&nbsp;a <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax accountant</a> from 1-800Accountant to make sure your<a class="link" href="https://1800accountant.com/services/bookkeeping"> </a>bookkeeping needs are handled accurately.&nbsp;</p>

Accounts payable is central to bookkeeping. It helps small business owners determine to whom they’ll pay debts, and it’s also helpful in noting the amounts on your balance sheet. While you may think accounts payable only refer to short-term debt, there are some valuable things you should know. Continue reading to learn important things you [&hellip;]

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Bookkeeping 101: What Is Accounts Payable?

<p>Double-entry bookkeeping is a system of bookkeeping that provides a more detailed view of your financial transactions at a glance.&nbsp;The double-entry bookkeeping system also complies with rules and requirements of the US <a class="link" href="https://1800accountant.com/blog/generally-accepted-accounting-principles">generally accepted accounting principles (GAAP)</a>.</p>
<p>For those new to bookkeeping, double-entry bookkeeping can seem complex. We'll break down what you need to know about it, how it works, and how it differs from single-entry bookkeeping.&nbsp;</p>
<h2>What is Double-Entry Bookkeeping?</h2>
<p>Double-entry bookkeeping is a bookkeeping method. Like single-entry bookkeeping, the goal of double-entry bookkeeping is to have your books balanced.&nbsp;</p>
<p>Another goal of&nbsp;<a class="link" href="https://www.thebalance.com/what-is-double-entry-accounting-1293675">double-entry bookkeeping</a>&nbsp;is to have all debits and credits accounted for. Debits and credits appear on transaction entries in double-entry bookkeeping, and each has a few important rules.&nbsp;To better grasp the concept, it's important to understand the fundamental rules governing debits and credits in double-entry bookkeeping.</p>
<h2>How Does Double-Entry Bookkeeping Work?</h2>
<p>Whenever your small business does a transaction, double-entry bookkeeping occurs. When an account decreases in value as a debit, the other will increase in value as a credit.&nbsp;</p>
<p>Double-entry bookkeeping has&nbsp;<a class="link" href="https://www.thebalance.com/what-is-double-entry-accounting-1293675" target="_blank" rel="noreferrer noopener">several rules</a>&nbsp;that you should know about. The most important is in regard to debits and credits because both affect other parts of your chart of accounts.</p>
<p>Debits will:&nbsp;</p>
<ul>
  <li>Decrease liabilities and owner's equity on balance sheets</li>
  <li>Increase assets on balance sheets</li>
  <li>Increase expense accounts on an income statement</li>
</ul>
<p>Credits will:&nbsp;</p>
<ul>
  <li>Decrease assets on balance sheets</li>
  <li>Increase liabilities and owner's equity on balance sheets</li>
  <li>Increase revenue on an income statement</li>
</ul>
<p>The&nbsp;<a class="link" target="_blank" href="https://www.thebalancesmb.com/develop-the-chart-of-accounts-for-your-small-business-392997" rel="noreferrer noopener">chart of accounts</a>, showing your balance sheets and income statement, will have five categories that debits and credits will influence:&nbsp;</p>
<ul>
  <li><strong>Asset</strong> <strong>Account</strong>
    <ul>
      <li>Accounts receivable</li>
      <li>Buildings</li>
      <li>Cash</li>
      <li>Inventory assets</li>
      <li>Petty cash balance</li>
      <li>Prepaid insurance</li>
      <li>Savings funds</li>
      <li>Undeposited funds</li>
      <li>Vehicles&nbsp; &nbsp;</li>
    </ul>
  </li>
  <li><strong>Liabili</strong>ty<strong> Account</strong>
    <ul>
      <li>Accounts payable</li>
      <li>Accrued liability</li>
      <li>Notes payable</li>
      <li>Company credit card balances</li>
      <li>Payroll&nbsp;</li>
    </ul>
  </li>
  <li><strong>Owner's Equity Account</strong>
    <ul>
      <li>Common stock</li>
      <li>Preferred stock</li>
      <li>Retained earnings (accounts associated with the owner's equity)</li>
    </ul>
  </li>
  <li><strong>Revenue</strong> <strong>Account</strong></li>
  <li><strong>Expense</strong> <strong>Account</strong></li>
</ul>
<p>The chart of accounts affects credits and debits in the following ways:</p>
<ul>
  <li>Assets: Increase debit; Decrease credit</li>
  <li>Liabilities: Increase credit; Decrease debit</li>
  <li>Equity: Increase credit; Decrease debit</li>
  <li>Revenue: Increase credit, Decrease debit</li>
  <li>Expenses: Increase debit, increase credit</li>
</ul>
<p>On an income statement, debits increase balances in expenses and loss accounts. Credits will decrease those balances. Debits will decrease revenue, while credits increase the revenue balance.</p>
<p>Every transaction that your business makes will require one debit and one credit. There is no limit to the number of transactions that can use credits or debits.</p>
<p>Double-entry bookkeeping must also follow this accounting&nbsp;<a class="link" href="https://www.investopedia.com/terms/a/accounting-equation.asp" target="_blank" rel="noreferrer noopener">equation</a>: Assets = Liabilities + Equity.&nbsp;</p>
<div class="rte-table-container">
  <table>
    <thead>
      <tr class="table-data-container">
        <td class="cell-0">Assets Include</td>
        <td class="cell-0">Liabilities Include</td>
      </tr>
    </thead>
    <tbody>
      <tr class="table-data-container">
        <td>Cash</td>
        <td>Debt</td>
      </tr>
      <tr class="table-data-container">
        <td>Cash equivalents</td>
        <td>Dividends payable</td>
      </tr>
      <tr class="table-data-container">
        <td>Liquid assets (certificates of deposit or Treasury bills)</td>
        <td>Long-term debt</td>
      </tr>
      <tr class="table-data-container">
        <td>Inventory</td>
        <td>Rent</td>
      </tr>
      <tr class="table-data-container">
        <td></td>
        <td>Salaries</td>
      </tr>
      <tr class="table-data-container">
        <td></td>
        <td>Taxes</td>
      </tr>
      <tr class="table-data-container">
        <td></td>
        <td>Utilities</td>
      </tr>
    </tbody>
  </table>
</div>
<p>Equity, or shareholders' equity, is the company's total assets minus its liabilities. This is the equivalent of the money that shareholders would receive if assets were liquidated and debts were paid.</p>
<p>Companies can also have retained earnings. Retained earnings are part of shareholders' equity. These earnings are equal to the percentage of net earrings unpaid to shareholders as dividends.&nbsp;</p>
<h2>How is it Different From Single-Entry?</h2>
<p>In double-entry bookkeeping, each account has two columns per transaction, and each transaction is in two accounts: debit and credit. Single-entry only requires one entry per transaction, one that can affect either expenses or revenue.&nbsp;</p>
<p>Double-entry bookkeeping accounts list accounts for assets, expenses, income, and liability. On the other hand, single-entry bookkeeping only lists expenses and income.</p>
<p>Double-entry bookkeeping also allows you to monitor multiple accounts. This can help you manage a larger business. All of your company's financial activities will appear in one place, and transactions will have easy-to-find descriptions.&nbsp;</p>
<p>Finally, double-entry bookkeeping contains more detailed information about your financial transactions. You'll examine your equity, losses, and profits instead of only profits and losses like single-entry bookkeeping.&nbsp;</p>
<h2>Example of Double-Entry</h2>
<p>An example of&nbsp;<a class="link" target="_blank" href="https://www.thebalance.com/what-is-double-entry-accounting-1293675#:~:text=As%20an%20example%20of%20double,statement%20account%20called%20%22Revenue.%22" rel="noreferrer noopener">double-entry bookkeeping</a>&nbsp;may help you understand how double-entry bookkeeping works. If your business spends $5,000 on office supplies purchased in cash, you'll add how you purchased the item, and the item purchased.&nbsp;</p>
<p>Cash works as an asset. This means that it will increase credits. You'll add the $5,000 as an entry in both the credit and debit sections. After doing this, you'll have records of how you purchased the office supplies and what you used the money to purchase.</p>
<p>On the income statement, you'll add the following information:&nbsp;</p>
<ul>
  <li>The type of account and any sub-categories (either expenses and losses or revenue and gains)&nbsp;</li>
  <li>The name you'll record the business transaction as</li>
  <li>Amount paid for each item, listed in the column to the right of the transaction name</li>
  <li>The total amount for the category</li>
</ul>
<p>To write this entry as an accounting journal entry, you'll write this entry similarly.</p>
<p>First, you'll write four columns:</p>
<ol>
  <li>Date</li>
  <li>Account Name</li>
  <li>Debit</li>
  <li>Credit.</li>
</ol>
<p>Then, you'll add:</p>
<ul>
  <li>The date of the entry (in the top row in the left-most column)&nbsp;</li>
  <li>The account name (office supply expense, in this case) and payment type (cash)</li>
  <li>Debit (the amount paid for the office supplies)&nbsp;</li>
  <li>Credit (the amount used to purchase the office supplies)</li>
</ul>
<h2>Work with the Professionals</h2>
<p>It's clear that double-entry bookkeeping is complex, but provides a comprehensive and accurate view of a business's financial transactions. It offers insight into the financial health of your company by tracking equity, losses, profits, assets, and liabilities. By following this method, businesses can ensure they are in line with the <a class="link" href="https://1800accountant.com/blog/generally-accepted-accounting-principles">US GAAP regulations</a> and better understand their financial standing.</p>
<p>Navigating the complex world of double-entry bookkeeping can be challenging, especially for those new to it. It's recommended that you work with <a class="link" href="https://1800accountant.com/services/bookkeeping">small business bookkeeping professionals</a> who can be of immense benefit. Experienced bookkeepers or <a class="link" href="https://1800accountant.com/">accountants</a> can help simplify this process and ensure accuracy. They can also provide valuable insights into your financial data. By outsourcing these tasks to the experts, you can focus more on their core operations while having peace of mind that their financial records are in order.</p>

Double-entry bookkeeping is a system of bookkeeping that provides a more detailed view of your financial transactions at a glance.&nbsp;The double-entry bookkeeping system also complies with rules and requirements of the US generally accepted accounting principles (GAAP). For those new to bookkeeping, double-entry bookkeeping can seem complex. We&#8217;ll break down what you need to know [&hellip;]

Woman using a computer with spreadsheets to work on double-entry bookkeeping in a modern office.

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What is Double-Entry Bookkeeping?

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