Bookkeeping

Bookkeeping Basics for Phoenix Business Owners

May 22, 2024

A business that doesn't practice bookkeeping basics is like a car without an instrument panel. You don’t know how much fuel you’re using, how fast you’re going, or if there are any warning signs indicating a problem. Just as an instrument panel provides critical information for safe and efficient driving, proper bookkeeping offers essential insights into your business's financial health. Bookkeeping helps you make informed decisions and avoid costly mistakes.

In this article, we’ll explore the 7 bookkeeping basics for Phoenix Business Owners, in addition to helping you find independent bookkeepers in Phoenix and bookkeeping services in Phoenix.

Why Bookkeeping is Critical to Your Business

There are a number of reasons that bookkeeping is essential for business owners.

  • Bookkeeping provides a clear and organized record of financial transactions, enabling them to track income, expenses, and profitability accurately. 
  • Bookkeeping helps in preparing vital financial statements, ensuring compliance with tax regulations, and making informed decisions about budgeting and investments. 
  • Bookkeeping also aids in identifying financial trends and potential issues early, contributing to the overall financial health and sustainability of the business.

Bookkeeping can be as simple or as complex as you’re comfortable and capable of making it. But at the bare minimum, these are the bookkeeping basics every Phoenix business owner should know.

The 7 Bookkeeping Basics for Phoenix Business Owners

Bookkeeping is another name for accounting. And as you know, most businesses require an outside accountant, a CFO, or an entire accounting department… depending on the size of your company. But at the bare minimum, every business owner is capable of basic bookkeeping to track the financial health of their company.

These bookkeeping basics include:

  1. Learning the difference between personal and business expenses
  2. Creating a system to save and log every receipt
  3. Recording invoices and income in a way that your expected and actual cash flow is clear
  4. Making a basic balance sheet to track the financial health of your company
  5. Reviewing your company’s books periodically
  6. Understanding basic tax requirements in Phoenix
  7. Conducting regular bank reconciliations

Now, let’s explore each of these in detail.

1. Personal vs. Business Expenses

Differentiating between personal and business expenses is crucial for accurate bookkeeping and tax compliance. Personal expenses are those incurred for personal needs and daily living, such as groceries and rent. Business expenses are directly related to the operation and growth of the business, like office supplies, marketing costs, and travel for business purposes.

Keeping detailed records and clearly marking receipts with the nature of the expense can further help maintain this distinction.

Tip 1: Start by opening separate bank accounts and credit cards for business transactions, ensuring no mingling of personal funds. 

Tip 2: Is this expense necessary and directly related to the operation and growth of the business? If you can make a compelling case that the expense is essential for either generating income or maintaining the business operation, then it is a business expense.

2. Logging Receipts

Scrambling to find receipts for your expenses is not fun. That’s why it’s best to create a simple system for logging your expenses at the moment they’re incurred. Here are the steps we recommend for logging your receipts.

  1. Establish a dedicated place for receipts, such as a digital folder and/or physical box.
  2. Use digital tools like PDF scanners, expense tracking apps, or accounting software to scan and store receipts electronically with your phone.
  3. Create categorization for your expenses (travel, supplies, ad expense, etc.).
  4. Build the habit of logging your expenses immediately after purchase.
  5. Regularly back up your records to prevent data loss.

Lastly, you should set aside time weekly or monthly to review and reconcile receipts with bank statements, maintaining an organized and up-to-date record system. More on that later.

3. Recording Income

Everyone’s favorite part of bookkeeping must be the money owed and money received. To create a system for recording income and invoices, a business owner should consider using accounting software like Quickbooks or creating their own simplified spreadsheet that includes the following:

  • Invoice number
  • Date issued and date due
  • Client or customer name
  • Amount owed

Record each invoice upon issuance and update it when payment is received, noting the payment date.

Also, maintaining an accounts receivable ledger will help you monitor outstanding payments. It’s important to follow-up on overdue invoices regularly, as this is money owed on work already done.

4. Making A Balance Sheet

A balance sheet helps business owners understand what the business owns (assets), what it owes (liabilities), and the owner's stake in the company (equity). It provides a snapshot of a business's financial health at a specific point in time.

The balance sheet should always follow the formula:  Assets = Liabilities + Equity

  1. Start by categorizing assets into current (cash, accounts receivable) and non-current (equipment, property). 
  2. Then, list liabilities as current (accounts payable, short-term loans) and long-term (mortgages, bonds).
  3. Equity represents the owner’s stake in the business and includes retained earnings and capital contributions. 

This information is crucial for assessing the company’s financial stability, making informed decisions, securing loans, and attracting investors. By regularly reviewing the balance sheet, owners can identify trends, manage resources effectively, and plan for future growth.

5. Reviewing Your Books

It’s important to do a periodic review of your company’s books. Here’s a checklist for any business owner that wants to systematically review their financial health:

  1. Set a Schedule: Determine the frequency of reviews (e.g., weekly, monthly, quarterly).
  2. Organize Records: Ensure all transactions, receipts, and invoices are accurately recorded and categorized.
  3. Review Financial Statements: Regularly examine the balance sheet, income statement, and cash flow statement to assess financial health.
  4. Reconcile Accounts: Compare bank statements with your records to identify discrepancies.
  5. Monitor Key Metrics: Track key performance indicators such as profit margins, expenses, and cash flow.
  6. Seek Professional Help: Consult a professional bookkeeping service in Phoenix to help make sense of your situation.

By systematically reviewing financial data, business owners can maintain accurate records, identify trends, and make informed decisions.

6. Understanding Tax Requirements

State-by-state, tax codes differ for businesses. That’s why it’s critical to be aware of your state’s practices. For example:

Arizona's Transaction Privilege Tax (TPT) is imposed on the privilege of conducting business in this state. It differs from a sales tax in that the tax is imposed on the business, not the purchaser. However, Transaction privilege tax is commonly referred to as a sales tax. While a business may pass the tax on to the consumer in the manner of a sales tax, the business is responsible for reporting and remitting the appropriate tax on their business activity.

How you report and pay your tax depends on how much you make, which is detailed on the City of Phoenix tax site. If this feels too complicated, then rest assured that there are many bookkeepers in Phoenix that can help you!

At 4Corner Business Services, we specialize in Bookkeeping, Accounting & Business Accounting. We give you the ease of mind that your financial reporting is done right, so you can focus on operating and growing your business.

Schedule your free bookkeeping consultation with us here.

7. Performing Bank Reconciliations

You can have the most elaborate and beautiful bookkeeping methods, but if your #s don’t match with your bank’s #s, then you’re going to be in for some real headaches. That is why bookkeeping basics includes performing periodic bank reconciliations, which is the process of double-checking your balances against the bank’s.

To perform a bank reconciliation, a business owner should:

  1. Gather Statements: Obtain the business’s bank statement and the internal financial records for the same period.
  2. Compare Transactions: Match each transaction in the bank statement with the internal records, noting any discrepancies.
  3. Identify Differences: Investigate unmatched transactions, such as outstanding checks or deposits in transit, and adjust the records accordingly.
  4. Adjust for Errors: Correct any errors found in the internal records or contact the bank for discrepancies in the bank statement.
  5. Reconcile Balances: Ensure the adjusted balance in the business’s records matches the ending balance on the bank statement.

By regularly performing bank reconciliations, business owners can maintain accurate financial records and identify potential issues early.

Are You Overwhelmed Yet?

We threw a lot at you. And these are just the bookkeeping basics. There are many more levels to bookkeeping that alter what you owe in taxes, such as inventory reporting methods of FIFO vs. LIFO. We certainly don’t expect you to tackle this all on your own.

So, have you considered hiring a bookkeeping service in Phoenix?

Setting all this bookkeeping up can take some serious time.

Tracking all of this can feel overwhelming.

Making sense of your balance sheet and analyzing the health of your finances is not easy without a degree in business administration.

Bookkeeping Services in Phoenix

Now that you understand the importance of bookkeeping to your business and also some bookkeeping basics, let me tell you a little bit about 4 Corners and how we can help you do all of this and more for your business.

4 Corners provides professional bookkeeping services to business owners of all sizes. Our services include Business Accounting, Tax Services, Tax Resolution, and Business Consulting.

We pride ourselves on efficiency and reliability in providing exceptional financial services for our clients. By leveraging the knowledge and experience of our professional bookkeepers, we will pass these benefits on to your business:

  1. Streamlined bookkeeping processes
  2. Organized and compliant financial records
  3. A financial team that can help you make important financial decisions
  4. Thus, more time for you to focus on running and growing your business

If this sounds of interest to you, then please…

Reach out to us here to discuss our bookkeeping services!

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