Bookkeeping Refreshers
Master these Basics to Ensure You have clean, accurate financials
With springtime and the season of renewal upon us, now is a great time for business owners to brush up on some basics, to make sure the financial foundation of your business is strong and poised for growth.
So, this week is the first in a three-part series about Small Business Financial Basics. We want to highlight what we think every business owner should know about their finances, including tips from our expert advisors and common mistakes to watch out for.
This week: Financial accounting fundamentals
Part 2: AR, AP, and why cash flow and profits are NOT the same thing
Part 3: How analyzing financial statements can help you make informed financial decisions for staying profitable and growing sustainably
So whether you are still managing your bookkeeping yourself, have an onsite team, or fractional support, keep reading for a refresher that will help ensure you have clean, accurate books this spring to keep you on track throughout the year.
Balance Sheets – A snapshot of your financial position, listing assets, liabilities, and equity. It shows what your business owns and owes at any given time.
Management Tip: Keep your balance sheet updated monthly and reconcile accounts regularly to ensure accuracy.
Common Mistake: Ignoring accumulated depreciation or failing to account for liabilities properly.
Income Statements – Also called a Profit & Loss (P&L) statement, this report tracks revenue, expenses, and profitability over a period of time.
Management Tip: Review at least monthly to assess financial performance and identify trends. If possible, consider analyzing AR (accounts receivables) and AP (accounts payable) on a weekly basis for added peace of mind.
Common Mistake: Mixing personal and business expenses, which can distort profitability and lead to tax headaches.
Cash Flow – Understanding cash inflows and outflows helps prevent shortages and ensures you can cover expenses when needed.
Management Tip: Talk to your financial professional about using a cash flow forecasting tool to anticipate upcoming shortages and plan accordingly, or to discuss financing or investing opportunities.
Common Mistake: Confusing profit with cash flow—positive income statements don’t always mean you have cash on hand.
Journal Entries & Ledgers – Every financial transaction is recorded in journal entries before being posted to the general ledger, ensuring accuracy in financial reporting. (As a reminder, the general ledger is the master record of all financial transactions, categorized by accounts, and serves as the source for financial statements.)
Management Tip: Automate entries using accounting software like QuickBooks, Xero, or FreshBooks to minimize errors.
Common Mistake: Posting entries to the wrong accounts, leading to misclassified financials, and inaccurate budget analysis.
Trial Balances – A tool to verify that debits and credits are balanced, helping to catch errors before financial statements are prepared.
Management Tip: Run a trial balance report before closing each period to catch discrepancies early.
Common Mistake: Overlooking unbalanced entries, which can result in inaccurate financial statements.
Accounts Payable & Receivable – Tracking what you owe (AP) and what is owed to you (AR) ensures you maintain good vendor relationships and steady cash flow.
Management Tip: Use software like QuickBooks or Xero to automate invoicing and bill payments.
Common Mistake: Not following up on overdue invoices, leading to cash flow problems.
Payroll Management – Proper payroll tracking helps with compliance, tax reporting, and keeping employees paid on time. And since your people are your most valuable asset, make sure you treat them well with on time, accurate payroll and benefits.
Keeping up with bookkeeping best practices can save time, reduce errors, and provide valuable insights for decision-making. Need help optimizing your financial records? Reach out at sales@breakawayba.com. We’re here to assist!
