Accounting & Bookkeeping

Basic Bookkeeping: Every Bookkeeper Should Know in 2024

Basic Bookkeeping
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Bookkeeping is the foundation of financial management, yet it's a task many small business owners dread or ignore. However, basic bookkeeping doesn’t have to be complicated, especially if you build good habits.

In this beginner’s guide, we’ll cover bookkeeping basics like:

What is bookkeeping, and how does it differ from accounting 
Core bookkeeping principles and its best practices
Must-know terminology
Examples and templates to help you get organized
Essential bookkeeping skills 

Follow along to learn the basic bookkeeping to run a financially healthy business. 

Table of Contents

What are Bookkeeping Basics?

Bookkeeping and Accounting are used interchangeably, but they are two distinct financial management activities:

Bookkeeping refers to the day-to-day recording of all financial transactions for a business. This includes purchases, sales, receipts, payments, and other transactions.

Accounting refers to summarizing, analyzing, and reporting bookkeeping data to paint a financial picture of the overall business. This aids financial decision-making.

Bookkeeping provides the raw inputs. Accounting turns that data into usable, business-critical information.

As business owners, bookkeeping basics you need to know include the following:

  • Transaction Documentation - Properly document all money in and out of the business. For every transaction, note key details like date, amount, purpose, client/vendor, payment method, accounting category, etc.
  • Reliable Recordkeeping -  Record transactions consistently in a bookkeeping system, whether software like Quickbooks or through manual methods like spreadsheets
  • Organization and Data Entry - Develop a bookkeeping routine and stick to it. Set aside regular time for tasks like collecting documentation, inputting transactions, backing up files, etc., and disorganization leads to headaches down the road.

Mastering these core bookkeeping tasks keeps your finances up to date and your business financially healthy.

Basic Difference: Bookkeeping vs Accounting 

Beyond definitions, what’s the difference between day-to-day bookkeeping and day-to-day accounting?

Here are some key ways the two practices diverge:

BookkeepingAccounting
Records daily transactionsInterprets recorded transactions
Focuses on data-entry accuracyFocuses on crunching numbers
Mindful details Evaluates the big picture
Documents money inflows and outflowsPrepares financial statements 
Handles tasks like invoices, payroll, and billsHandles taxes, analysis, and forecasts 

Bookkeeping logs financial information, and Accountants then contextualize and analyze it. Both involve numbers but serve unique purposes. 

Understanding the difference helps small business owners know when to handle tasks internally or pass them to a qualified bookkeeper or accountant. 

As a busy entrepreneur, properly maintaining your financial records can be daunting and time-consuming. Let an experienced bookkeeper handle the basics through affordable outsourcing. Get a customized quote for expert bookkeeping assistance. Learn about our Bookkeeping services

How to Handle Bookkeeping for Your Small Business?

While formal training helps, basic DIY bookkeeping isn’t impossible for many solo entrepreneurs and small business owners.

Here are four tips to handle the numbers:

  • Choosing a bookkeeping system. Excel, Quickbooks, Xero - review bookkeeping software tools and decide what fits your technical skills and industry needs. Cloud-based systems increasingly offer more automation and simplicity without advanced accounting knowledge.

  • Create a routine. Daily or weekly, schedule bookkeeping sessions and stick to them. Set calendar reminders if needed; consistent habits present transaction backlogs.

  • Track everything. Every dollar, whether its owner draws, asset purchases, or sales income, should be documented. Digital tools automate tracking in linked business accounts.

Set your business up for stable financial management by approaching bookkeeping methodically. Develop water-tight systems early on. 

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Bookkeeping Basics 101: Key Terminology 

Learning common vocabulary in bookkeeping ensures better communication with clients, vendors, accountants, and government agencies.

Here are a few basic terms even a novice small business bookkeeper should know:

  • Accounts Payable - Expenses or outgoing payments a company owes to suppliers 

  • Accounts Receivable - Right to receive because it has provided products or services

  • Accrual Basis - A method of accounting that records revenues/expenses when transactions occur 

  • Balance Sheet - Financial statement showing a business’s assets, liabilities, and equity at a point in time

  • Double-Entry - A system of recording every transaction with equal debit and credit entries to linked accounts

  • General Ledger - The central record of all financial transactions in chronological order

  • Income Statement - Financial statements detailing a company’s revenues and expenses over a while

Clarity on such standard terms will help business owners run bookkeeping internally and better collaborate with accountants and advisors. 

Also Read: What is Single-Entry Bookkeeping? – Explained with Examples

Bookkeeping 101 for Small Businesses: Examples

Bookkeeping is often easiest understood through examples. Let's walk through some everyday small business financial transactions to reveal core bookkeeping principles in action: 

  • Sale of Product or Service

An IT consulting firm completes $5,000 worth of advisory work for a client. This translates to:

  • Debit: Accounts Receivable - $5,000
  • Credit: Revenue - $5,000

Promises of future payments and earned income documentation make records more valuable.

  • Owner Contribution

The owner invests $10,000 of personal funds into their side-hustle bootstrapped startup as additional capital. This means:

  • Debit: Business Bank Account - $10,000
  • Credit: Owners Equity - $10,000

This transaction shows the invested amount in the organization and the increase in overall business equity.

  • Payroll Expense

Paying an employee their monthly $2,500 salary involves:

  • Debit: Salaries Expenses - $2,500
  • Credit: Business Bank Account - $2,500

To keep track of personnel expenses in the organization and make informed budget cuts if and when necessary  

These examples exhibit double-entry bookkeeping on which both sides of transactions - the debit and offset credits - are recorded within the general ledger. This creates a corresponding paper trial as proof of the book balances. 

Basic Bookkeeping

Bookkeeping 101: Basic Templates

Recording financial transactions is smoother with the right tools.

Here is an example of what a bookkeeping template would entail: 

  • Type of transaction
  • Date
  • Short description/memo
  • Accounting classification (bank account, income, expense, etc.)
  • Debit and credit columns
  • Running balance totals

Download a Word document, Excel version, or PDF bookkeeping spreadsheet template to simplify data entry and organization. Customize columns and categories as needed for your business transactions. 

Consistency, accuracy, and legibility are critical; rushed handwritten notes on scrap paper can lead to problems. Leverage bookkeeping templates for orderly recordkeeping. 

Skills Needed for Basic Bookkeeping

Bookkeeping software and spreadsheets handle the heavy lifting today, but the people behind the keyword should nurture specific skills and knowledge: 

Detail orientation - Precise data entry and careful documentation prevent problems during account reconciliation and tax time. 

Organization - Structure, routine, naming conventions, and cataloging help tame financial records. 

Basic math and accounting competence - Grasp concepts like double-entry methods. Know debit vs. credit definitions. 

Software proficiency - Understand features and functionality of bookkeeping systems utilized—the ability to run reports when required.

Time management - Keep up with daily or weekly transactions promptly. Don't let paperwork pile up.

For small business owners handling their financial records, dedicate time to constantly strengthening these core skills through online courses to become a certified bookkeeper. Invest to build confidence in bookkeeping accuracy.

Related Article: Remote Bookkeeper: How to Choose the Best One?

The Bottom Line

Now you know the bookkeeping basics, including its distinction from accounting, standard practices and terminologies, examples, skills needed, and helpful templates.

Running a lean startup or small business demands financial oversight. Don't let bookkeeping basics intimidate you or bottleneck operations. Start simple, and then refine techniques as your business grows.

Call a bookkeeping professional to leverage tried and tested systems if basic bookkeeping seems beyond your entrepreneur or small business operator's capacity.

Basic Bookkeeping