What Is Bookkeeping?   

Bookkeeping is recording the financial transactions of your company to keep track of money coming in and money going out. Bookkeeping is commonly associated with entering transactions into QuickBooks or another accounting program. Recording transactions is an important step in the bookkeeping process, but not the only one. 

Effective bookkeeping also involves gathering necessary documents, such as receipts and invoices for transactions, and preparing a system that does not overlook transactions. The overall goal of bookkeeping is to gain an insight into the financial performance of a company and prepare the business for tax season.  

Monthly Bookkeeping Steps 

Performing monthly bookkeeping tasks is important for several reasons. First, monthly bookkeeping saves time by completing tasks at regular intervals, instead of all at the end of the year. 

Second, financial reports are updated regularly with monthly bookkeeping. If you need to generate a year to date or monthly profit-and-loss statement, monthly bookkeeping ensures these reports reflect the most up-to-date financials of the business. Now that we know why monthly bookkeeping is important, let us discuss the most important monthly bookkeeping tasks.  

Separate Business and Personal Expenses 

Having separate accounts for business and personal use is extremely important to good bookkeeping. Having separate accounts makes it much easier to track business expenses, which will save a great deal of time when filing business taxes.  

Using Separate accounts streamlines your tax preparation. Instead of going line by line through a bank statement trying to determine if an expense was business or personal, you already know that the expense was a business transaction, as it came from the business account. 

This reduces the chances of overlooking a deduction, or including a personal expense as a business deduction. Eliminating errors ensures your tax filing is accurate and avoids delays and penalties.  

Bank Reconciliation 

Bank reconciliation is the process of comparing your bank and credit card statements with accounting books to correct any mistakes that may be present. 

For example, if your bank statement has an expense that was not recorded in your accounting books, your book balance will be larger than actual bank balance. Correcting these and similar errors ensures your business will have an accurate amount of cash on hand, and helps avoid issues such as overdraft fees and returned checks. 

You do not need an accounting software program to do bank reconciliation. Recording business transactions in an Excel spreadsheet can work well. The most important thing to remember is to record all transactions promptly and accurately.  

Organize Documents 

Organizing documents such as receipts and invoices is another important part of bookkeeping. Your business should develop a system or workflow process for recording and storing documents both before and after the transaction is recorded.  

For example, a process for recording and storing an expense receipt may look like this:

1. Purchase good or service 

2. Get receipt 

3. Record expense in books or accounting software 

4. Store receipt in designated place 

Apps like Dext and Hubdoc can make storing receipts and invoices very simple. Dext allows you to take a single picture of many receipts, and the program recognizes each as a separate transaction. If you ever need to look up a particular transaction, it is stored in the designated area.  

Review Accounts Payable (AP) and Accounts Receivable Reports (AR)

Reviewing AP and AR accounts through an aging report is a task that helps identify accounts for follow up action. The aging report is simply a table of each AR or AP account classified by how long they are outstanding. A table can help clarify this idea:  

In the above report, amounts outstanding are classified by customer and how long their invoices are past due. For example, “Customer 1” has owed $2,000 for over 90 days, so it would be a good idea to place a collection call as a reminder to submit payment. You can make similar calls to “Customer 2” and “Customer 3” for their past due accounts.    

An aging AP report follows the same logic and shows which vendors the business is past due on, and helps avoid overdue payment fees and other penalties.  

Aging reports become more useful when dealing with many accounts, so don’t worry if aging reports are less of a priority when your business is first starting out. Think of the aging report as another tool you can use to maximize cash flow.   

Additional Monthly Tasks 

There are additional monthly bookkeeping tasks you can do to keep your books up to date and save time in the future. Here is a short checklist of items you may add to monthly bookkeeping: 

• Reconcile petty cash receipts 

• Review payroll entries 

• Review any sales tax entries or issues 

As your business grows, you will undoubtedly add more monthly, weekly, and even daily bookkeeping tasks. Developing a standardized process for each task is a great way to increase efficiency and effectiveness.   

I hope this article helps you plan and execute your monthly bookkeeping tasks. If you would like more information about bookkeeping, be sure to check out the rest of the In The Books website!