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June 18, 2022

Basic Bookkeeping Concepts for Beginners

Bookkeeping for beginners doesn’t need to be a headache. In this blog, we’ve listed basic yet useful concepts to help you get started - from how you can fill in your records, easy bookkeeping practices you should know, some handy tips on learning bookkeeping at home and so much more.

Don’t have an accounting degree or a bookkeeping qualification? No problem. Here are the basic concepts you can learn to get started right away to do the books like a pro.

  • Where Do I Start?
  • Bookkeeper vs. Accountant vs. DIY
  • Basic Types of Bookkeeping You Should Know
  • Easy But Vital Bookkeeping Practices You Should Follow
  • The Basic Bookkeeping Terms You Need to Know
  • Useful Tips on Learning Bookkeeping at Home

1. Where Do I Start?

The first concept to get you started as a beginner is to know how you’ll complete your records. Typically, there are three popular options:

  • Spreadsheets: They can be a good starting point to get you up and running. Although they’re suitable for smaller businesses, you’ll find that it could be challenging to maintain them as your business grows and human errors can creep in too.
  • Accounting Book: If you’re just keeping track of simple accounting records, then an accounting book can be the answer. However, the manual process isn’t for everyone, especially with the government introducing the Making Tax Digital (MTD) initiative.
  • Bookkeeping Software: To comply with MTD, you will have to use a bookkeeping app or desktop software. To make the process simpler, look for a solution that takes the confusion out of bookkeeping with easy-to-understand phrasing and the critical features that you’ll need.

2. Bookkeeper vs. Accountant vs. DIY

As mentioned earlier, you don’t need formal degrees or qualifications when it comes to doing the books. Still, here are the main options available.

  • Bookkeeper: A bookkeeper is someone who’ll accurately record the financial data of a business. They’ll make sure that every entry is correct while logging all of the transactions in the books. In simple terms, bookkeepers record and organize all financial data. However, this can often be done monthly, quarterly, or even annually.
  • Accountant: Accountants are mainly responsible for generally overseeing accounts and producing financial statements and tax returns that comply with the law. Accountants will adjust entries made by bookkeepers at the end of each fiscal period to help make more informed business decisions.

  • DIY: It can be effortless to start bookkeeping, as you only really need to download a bookkeeping app. The more you do it yourself for your business, the easier the process can become. You can essentially take full control and be the bookkeeper for your own business so you don’t lose any visibility.

3. Basic Types of Bookkeeping You Should Know

There’s a little bit of learning involved that will make getting to grips with bookkeeping much easier in the long run. To help, we’ve listed the most basic types of bookkeeping you should know below.

  • Cash: The account where all business transactions pass. This is an important account that often bookkeepers use two journals, cash receipts, and cash disbursements, to track the activity.
  • Accounts Receivable: If your business sells products or services and you don’t collect the money immediately, then you have receivables. This account tracks the money due from customers. This needs to be kept up-to-date so you can send accurate and timely invoices.
  • Inventory: The account where you account for all of the products you have in stock. The numbers you have in your books should be tested by doing physical counts of inventory on hand.
  • Accounts Payable: The account that allows you to see what money is leaving or has left the business - and when. This account gives you a clear view of everything you need to pay and makes sure that you don’t pay anyone twice.
  • Loans Payable: The account which tracks and breaks down everything that you still owe and when payments are due for anything that you’ve borrowed.
  • Sales: The account where you track all of your incoming revenue from sales transactions. This is another important account, as recording sales accurately and promptly helps to know where your business stands. 
  • Purchases: The account where you track any materials or goods that you have bought for your business. This is a key component of calculating Costs of Goods Sold which you subtract from Sales to find your business's gross profit.
  • Payroll Expenses: The account where you track salaries and wages paid to your employees. This is often the biggest cost of all for many businesses. Keeping this accurate is essential for meeting tax and other reporting requirements.
  • Retained Earnings: This account tracks any of your company’s profits that are reinvested in the business and aren’t paid out to the owners. The earnings here are cumulative, so they appear as a running total of money that’s been retained since the company started. It’s a good way of tracking how well your business has done over time.

4. Easy But Vital Bookkeeping Practices You Should Follow

For any beginner, bookkeeping can seem overwhelming, but it doesn’t need to be. You’ll start on the right foot by following these easy yet vital bookkeeping practices.

  • Don’t Leave it Last Minute: Keep dates and deadlines in mind while creating reminders so you’re not doing the books the night before. Do it earlier to avoid mistakes and spend less time looking for crucial information.
  • Keep Records Nice and Tidy: Cluttered records with endless bits of paper will make it a nightmare to do the books with valuable information all over the place. Keep them organized so you know exactly what to look for without wasting time.
  • Store Your Receipts: If you store receipts through software, it means you’ll finally get that paperless office you’ve wanted. Everything is in one place and if there’s ever an investigation, all of the information related to expenses will be available within your software or app via attachments. So, you’ll always be compliant.
  • Keep Business and Personal Finances Separate: To help you do the books much faster, think about keeping your business and personal finances separate. So, you won’t need to look through personal information for business-related finances and vice versa.

5. The Basic Bookkeeping Terms You Need to Know

From balance sheets to income statements, there’s no denying that there are new terms and phrases you’ll come across. In practice, they’re quite easy to understand once the terms are broken down into much simpler definitions.

Although we can’t possibly list them all here, here are five of the most popular bookkeeping terms you should understand.

  • Balance Sheet: A report which breaks down your business’ financial situation. It includes the assets, liabilities, and capital of the business. Its purpose is to help show what your business owes and owns.
  • Chart of Accounts: A full list of accounts used in your business to categorize financial transactions. This can include assets, liabilities, equity, income, and more.
  • Expense: This is the fixed, variable, accrued or day-to-day costs that a business may incur through its operations.
  • Trial Balance: A business document where all ledgers are compiled into debit and credit columns. This is to make sure a company’s bookkeeping system is mathematically correct.
  • Profit and Loss: A financial report which shows the revenue and expenses over a period of time.

This is just scratching the surface. There are plenty of additional terms and phrases that will help you get started. You’ll benefit from bookmarking this glossary which is full of bookkeeping terms (no confusing jargon though) that we'll regularly update.

6. Useful Tips on Learning Bookkeeping at Home

To get started, you don’t need to search for the cheapest bookkeeper around, even if you’re a complete newbie. You work hard for your money so the last thing you want is to give a big chunk to the taxman and then another hefty slice to a bookkeeper for tasks you can do by yourself.

To get started, here are some useful tips on how you can learn bookkeeping at home.

  • Get Familiar With Bookkeeping Terms and Phrases: Remember that glossary we told you to bookmark? Now is an excellent time to sit down, read and understand the terms and phrases. It’ll give you a better idea of what to expect and what things mean in bookkeeping.
  • Do Your Research: Look for resources online through Google and find some helpful blogs that are regularly updated to keep you in the know.
  • Take Advantage of Tutorials: To get to grips with bookkeeping, head over to free resources from webinars to tutorials and even workshops.
  • Use a Bookkeeping App: The best way to learn is to get hands-on in your own time and use a bookkeeping app that’s both easy to use and understand. No formal degrees, no qualifications. Just look for one that has useful features you’ll need and is not packed full of ones you’ll probably never use.

All of these are great places to start for any beginner. However, as simple as it might seem on paper, you must recognize when the beast becomes too big. When this is the case, you should know to pick the right time to hand things over to a professional. 

Career path and progression

Look at progression in this role and similar opportunities. With experience and training, you could become a bookkeeping expert and take on more complex work. You could also become self-employed and set up your own business.

Cultivate your desire to learn new things because there’s always something new to discover and learn. The accounting industry is always evolving, and you must roll with the changes if you want to stay in business.

Reach out to Get Trained Get Hired to book a free 30-Minute career counseling meeting. At Get Trained Get Hired we provide you with the necessary training to learn practical skills to become an accountant. Our training is based on practical real-life cases. After the training, we work on your resume and try to place you in accounting firms through our network. You will also get access to like-minded individuals who are looking for jobs through our WhatsApp group. Please feel free to contact us at [email protected]. Or call us at 647-870-6986.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your situation and is not intended to be used without consultation from professionals. Salman Rundhawa and Gettrainedgethired.com will not be held liable for any problems that arise from the usage of the information provided on this page.

Author

Salman Rundhawa

Salman has a strong desire to help others succeed and believe in passing on the knowledge. He likes to mentor others and wish to play part in other people success.

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