3 Common Types Of Bookkeeping You Should Know

If you're a business owner, you probably know how important bookkeeping is. You need it to know what your assets are, how much money came into your company and where it went out of your company. It's also an essential requirement when filing taxes. This article discusses three types of bookkeeping you should know about if you're a business owner.

Accounts Receivable

You need to have these accounts if you have customers who don't require their payment immediately. They allow you to track your cash flow and your customer's payment history, which can help you when choosing new customers.

You may also need these accounts if your customers owe your company money for goods and services they've already received. For example, if you own a restaurant and allow your customers to pay later for meals they've eaten, you would have an account specifically for that. To set up accounts receivable, you need to name the account, create a sub-account for each individual customer, and name a department that will manage the account. An account can do all of this for you. They'll also advise you on the number of accounts to set up based on the number of your customers.

Accounts Payable

These accounts are used when you purchase something on credit from another company in anticipation of making future sales. They allow you to track the amount you owe other businesses and how much money has left your company. Hiring an accountant to set up this account for you will enable you to make early payments on your debt, prevent you from overspending, and ensure you don't pay your debtors more than once.

These accounts can have several entries depending on the purchase you are making. The entry will only appear in your books when the item has been shipped or received. You can also have several accounts for each company that is owed money with different payment terms. This way, keeping track of the receipts of purchases will be easier.

Inventory

An inventory account lists all the items you have in stock. Having this record is necessary because it will enable you to calculate the cost of goods sold, keep track of the remaining stock levels, and determine how much you need to order. You'll also know the products that are selling more and the value of your inventory. The higher the number of products you have in your inventory, the higher your overhead costs.

Inventory accounting is complicated because of the different types of items you can have in stock - raw materials, work-in-progress (WIP), and finished goods. To get a fair valuation of these items you may need the services of an accountant.

Bookkeeping is an essential part of managing any business. Whether you are just starting out or have been in the game for decades, you need to succeed. Contact a team in your area for more info.