Best Practices for Tracking and Recording Accounting Transactions

Hello, business owners! Stepping into the entrepreneurial world is quite the adventure, and keeping track of finances is part of the ride. If managing money makes you uneasy, we’ve got your back. This article is all about the value of tracking and recording your accounting transactions in an easy and approachable way. 


We will guide you through some simple, bite-sized steps to help you manage your finances easily and confidently.


The Basics of Accounting Transactions


Every time money enters or leaves your business, an accounting transaction occurs. These transactions can be sales, purchases, expenses, or even loans. As a business owner, recognizing the significance of each type helps you make informed financial decisions. 


Money’s movement within your business affects your bank balance and creates an accounting transaction. These transactions come in various forms; here are a few: 


• Sales boost your revenue

• Purchases reduce your cash but add to your inventory

• Expenses decrease your profit

• Loans increase your liabilities but also increase your cash on hand 


All of these transactions play a key role in the story of your business’s financial health. 


Why Tracking and Recording Is Important


You might be wondering why it is so important to recognize each transaction type. The answer lies in the power of informed decision-making. Understanding the flow of money in and out helps you discern patterns, manage your cash flow more effectively, and strategize for future growth. 


By tracking and recording your transactions, you are writing your business’s financial story. That information will guide your decisions and also becomes important when you think about the future, for example, if you want to attract investors or sell your business. It is about having a clear financial picture that supports your business goals.


How to Organize Your Transactions


Imagine trying to find a specific book in a library without using a catalog system. Managing a business with disorganized financial records would present the same challenge. When organizing your business finances, you can start by dividing them into three simple categories: 


1. Income: This is the money that your business earns. It usually comes from selling your products or services. For example, if you own a bakery, the money you get from selling bread and cakes goes here.

2. COGS (Cost of Goods Sold): These are the costs directly related to making your product or providing your service. Sticking with the bakery example, this would include the flour, sugar, eggs, and any other ingredients you need to make your baked goods.

3. Expenses: These are other costs that are not directly tied to making your product but are still necessary to run your business. This can include things like rent for your shop, utility bills, or cleaning supplies.


By putting each transaction into one of these categories, you can consistently track where your money is coming from and where it is going.


Intro to double-entry bookkeeping


Double-entry bookkeeping might seem complex, but it is a really helpful tool for your business. Think of it as a way of keeping score in a game where every move counts twice. Every business transaction you make in this system is recorded in two different places.


For example, if you buy supplies for your store, you would record this in two ways: first, note the decrease (-) in your cash because you spent money, and second, record the increase (+) in your supplies. This method is great because it gives you a complete picture of what is happening with your money; it shows you both sides of every financial decision you make.


By seeing both sides of every financial decision, you can see how each transaction affects different parts of your business. This helps you understand your finances better and makes sure everything stays balanced.


Bank Reconciliation


Even small financial differences can upset your entire business budget. That is why it is important to make bank reconciliation a regular task. This process compares your records with your bank statements to find any differences. Doing this every month helps you quickly catch and fix any issues, keeping your financial records straight. Review this article to get a deeper understanding of bank reconciliations and how they can benefit your business.


Additional Resources


New standards, tools, and best practices for managing finances emerge regularly. As a business owner, staying updated is in your best interest. If you find it overwhelming to keep up with these changes, consider hiring a bookkeeper or an accountant who can help manage your financial operations efficiently. 


As a next step, your bookkeeper can stay up-to-date by attending webinars, workshops, or classes at local community colleges. Their participation in these learning opportunities would allow them to bring valuable insights and updates to your organization, ensuring that your financial management aligns with current best practices.


Review with an Accounting Professional


You know your business inside out. Yet, sometimes, an external perspective can offer invaluable insights. Periodically, have an accountant or financial advisor review your records. They can identify potential pitfalls, suggest ways to be more efficient, or even offer advice on tax breaks and benefits for your business.


The Benefits of Accounting Software


Keeping your business running smoothly doesn’t have to be complicated or costly. Many user-friendly platforms can lighten your load by automating your financial tasks.


With a software platform like FINSYNC, you can start simplifying your financial processes right away.  You can schedule and pay bills for free while keeping tabs on sales and expenses. Create invoices automatically and reconcile your bank statements with just a few clicks. This ease of use means less time spent on manual work and more time for other aspects of your business.


Additionally, these systems enable you to generate detailed financial reports quickly. With paper systems or spreadsheets, this task alone could take hours. However, using software makes financial analysis easier and helps with decisions that could significantly affect your business’s future.


Looking Ahead


Congratulations on making it through this guide! Remember, mastering your accounting transactions does not have to be an intimidating task. You can handle your financial operations more effectively with the right tools, mindset, and simple strategies outlined in this article. These incremental steps are designed to help you understand and manage your finances without feeling overwhelmed. So, take it one step at a time, and watch as your business grows and thrives on a foundation of solid financial management.


How FINSYNC Can Help


FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.


Helping small businesses is our core mission at FINSYNC.

Centralize your accounting, payroll, and cash flow management on our all-in-one platform.

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