The exact steps a small business will take when it comes to bookkeeping and accounting processes will differ according to the industry, size of the business and accounting team, the sophistication of the accounting system and other factors. But there are still common steps every business should follow to ensure sound bookkeeping practices.
Accounting and Bookkeeping Tasks for a Small Business
Bookkeepers are responsible for many tasks, and in small businesses, some of those responsibilities fall on the owner, as well. At its most basic level, effective bookkeeping will track what the business owes to others, what it is owed, ensure bills are paid on time and customers pay on time, calculate and pay state and federal taxes, and provide a snapshot of the company’s financial state.
Let’s take a look at key steps in the accounting process by reviewing the different tasks small business bookkeepers perform by day, week, month, quarter and year.
Daily Accounting Tasks
Each and every day, the bookkeeper needs to complete tasks associated with recording transactions.
Deposit all payments. Deposit all cash and check payments received from customers in the business’s checking account. Enter all credit card transactions to initiate the transfer of funds from the customer. Doing this daily gives the company an up-to-date picture of its available cash.
Enter and pay bills. Check all incoming invoices and enter them into the accounting system. Keep all receipts and other relevant documents for tax purposes and for reference in case there are errors when balancing the books. The IRS recommends paying all business expenses by check, noting on the deposit slip the source of the deposit and keeping copies of all slips.
Summarize cash sales for the day. A daily summary of cash receipts is helpful because it gives the business owner an idea of how much money it took in that day. It can help the company understand its current cash position.
Weekly Accounting Tasks
At least once a week, the bookkeeper needs to make sure all the numbers add up and there is enough cash to cover expenses.
Reconcile banks accounts. Compare deposits listed on the bank statement with deposits shown in the accounting system. Integrating a bank feed simplifies this process by providing a digital link between the bank account and the accounting software and imports bank transactions daily. This means the bookkeeper isn’t forced to manually download the bank statement and import it. The business can define the matching rules in the system for reconciliation, which simplifies the process. Don’t have the same person who handles the cash handle the bank reconciliation. If there is a high cash volume, reconcile daily.
Check what you owe and who hasn’t paid you. Identify customers who haven’t paid invoices on time and follow up by email and phone. If accounts receivable (AR) are completed manually, the IRS recommends setting up an “aging” column in the books to organize open invoices based on the number of days a bill is past due. Accounting software can create these reports and update them in real time.
Look for unpaid bills. Determine what bills are due next and lay out a plan for paying them. Much like with AR, a company can set up an accounts payable (AP) aging report in its account system to track money owed and due dates. Employees should reconcile invoices with purchase orders and confirm receipt of goods before payment (i.e., three-way match). Make sure to have different people cut and sign the checks to prevent fraud.
Financial housekeeping. Every week, the business should set aside time for miscellaneous bookkeeping tasks such as emailing clients account statements.
Monthly Accounting Tasks
With that bookkeeping work completed, it’s time to think about more involved tasks around month-end.
Balance the books. The National Federation of Independent Businesses (NFIB) suggests reviewing and reconciling all bank and credit card accounts should be at the top of a business owner’s list of tasks at the end of the month. It ensures all incoming revenue and outgoing expenses have been tracked and recorded properly and that the business isn’t overspending. Make sure the bank statement, checkbook and general ledger all reflect the same numbers. Verify how much money is in the account, make sure that the checkbook and books reflect all bank charges and the correct balance in the checking account and correct any errors.
Review credit card payments. Make sure credit card payments have been deposited in the bank account to verify there have not been any processing problems that kept money out of your hands.
Review accounts receivable to resolve outstanding invoices. Identify which customers haven’t paid by the due date, and send out reminders and overdue invoices to delinquent customers. Many companies will also call customers for an update at this point.
Process and review payroll. Many businesses outsource payroll processes because of the complexity of managing payroll taxes. Payroll processing includes payroll tax withholding, reporting and depositing income tax, and other tax-related payments. There are two deposit schedules for taxes, monthly and semi-weekly, and business must figure out which schedule they are required to use each year. Companies should look at Publication 15 for Forms 941, 944 and 945, or Publication 51 for Form 943. Not making these payments could lead to a failure-to-deposit penalty of up to 15%.
Review inventory data. Accurate inventory numbers on are required to determine cost of goods sold (COGS), an important figure when creating the income statement for companies in many industries. Analyzing inventory data also helps you identify excess stock, determine products to promote or reduce in price and those that need to be written off.
Generate financial statements. Once you track all these numbers, you can generate the monthly income statement, balance sheet and cash flow statement. Compare actuals with budgeted expenses. Compare your month-end balance sheet with the prior month. Look at which numbers are changing and why — is it a result of slow-paying customers or increasing expenses? Are sales projections reflecting results?
Provide a profit and loss (P&L) statement. Show revenue and expenses and report those numbers to business leaders on a P&L statement. These numbers show the company’s current financial position and are the basis for forecasting future revenues and expenses.
Quarterly Accounting Tasks
Once a quarter, the bookkeepers (hopefully with a little help from either an accountant on staff or a consultant) must figure out taxes and may also put together quarterly financial statements.
Estimate and pay quarterly federal taxes. C corporations and individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe taxes of $1,000 or more when they file their return.
Pay state taxes. Pay all necessary state taxes — which are different in every state but can include sales tax, excise taxes and more. Businesses will also be taxed at the local level and need to pay property taxes.
Annual Accounting Tasks
Once a year, bookkeepers have to complete more time-intensive tasks related to taxes and year-end close.
Review fixed assets. At least once a year, companies should take a close look at their fixed assets to make sure more recently acquired assets are on the books and those no longer being used are removed. Any companies that follow GAAP must also assess the value of their intangible assets, including goodwill.
Prepare and issue W-2s to employees and 1099s for contractors. The IRS says employers must complete and file these two tax forms, either electronically or by mail. The W-2 form, or Wage and Tax Statement, shows the wages paid and taxes withheld for the year. For contactors, the 1099 summarizes income contractors received from your company and provides important information for tax purposes.
File tax returns. The IRS has detailed information on how and when to file taxes and what types of taxes are required depending on the structure of the business. Most small businesses use a tax accountant during tax season to make sure all their documents are accurate and filed properly.
Prepare for year-end close. Prepare the general ledger accounts for financial statement presentation and to start the next accounting period. Income statement accounts must be zeroed out in preparation of the next accounting period, and the balances are carried over to the balance sheet.
Get the Free Small Business Accounting Checklist
This downloadable version of the checklist includes key steps in the accounting process, broken down by day, week, month, quarter and year.
Automate Bookkeeping Task With Accounting Software
Many of the bookkeeping processes listed here are time-consuming and error-prone if completed manually but can be automated with accounting software. It can automatically make payments to your vendors, send out invoices and follow-up reminders to customers and generate financial statements. An accounting system also makes it easier to access the information needed for financial reporting of all shapes and sizes. There’s a reason more than half of U.S. companies surveyed by Robert Half now use cloud-based solutions for some or all of their accounting and finance functions.
Accounting software gives real-time visibility into finances to better manage cash flow and make better decisions when it comes to operations. And when it’s tax time, having software helps the business accurately identify tax amounts to decrease the taxable income rate, leaving more cash to invest in the people and the business.