With so much talk today about "work-life balance" and everyone having their own opinions on this topic, I find it a little humorous that we don’t talk about balancing our business’s books as much (enter sarcastic smirk here).
All jokes aside, one of the most important activities to be completed by a business owner or a bookkeeper is to balance the accounting books on a regular and frequent basis. This can be done easily through your accounting software whether it be an online subscription like Xero who I am a certified advisor for or a desktop based solution that you use.
How do you balance your books? I’m glad you asked. But before we go there, we need to discuss a little accounting theory. I promise it will be a lot less painless than your college accounting course. The balancing of the accounting books is rooted in the fundamentals of accounting. In accounting, we use something known as double-entry bookkeeping/accounting. We also use very technical terms such as “Debits” (on the left) and “Credits” (on the right) and we need each item to have an offsetting account for example:
As you can see, we had Sales of $500 and subsequently, we also received $500 in cash because of those sales (let's assume we didn't accept credit cards for your services in this example). This is an example of a journal entry in the books using double entry accounting. Every account (Lawncare Sales, Cash, etc.) have their own definitions as to whether they are a Debit or a Credit. To make your head spin just a little bit more, every account (Cash, Sales, etc.) can be both a Debit or a Credit depending on what activity is occurring in the business.
Luckily in our technologically advanced world, we have accounting software that performs the majority of these functions without us business owners and entrepreneurs needing to know all the intricacies of accounting and bookkeeping to stay afloat.
Ok. Now for how we balance our books. In your accounting platform, the accounting software will pull charges in from your bank (Also known as the bank feed. If you don’t have this set up, shoot me an email and I’ll be happy to see if I can help you out) and attempt to match them up to the correct accounts based on your Chart of Accounts. Then you or your bookkeeper will step in to correct and post the journal entries to the ledger. This at times can be a very time-consuming process especially if you don’t do it frequently or if you haven’t done it in a very long time; if ever. One of the big benefits of having your own bookkeeper for your business is because you have a professional who is knowledgeable of the accounting systems and how all of your charges need to be posted. I recommend reconciling your bank account and balancing your books at least weekly. However, the more frequently you reconcile and balance your books, you will have more visibility and you will be able to identify financial issues as they arise.
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