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Bookkeeping Basics Every Business Owner Should Know

When someone finally decides to start a business, their focus is usually on getting up and running, reaching customers, and delivering their best products or services. Maybe a few other things come to mind, but how often do you hear anyone talk about bookkeeping?

Exactly, my friends — not enough. That’s why today we’re going over the basics of bookkeeping. At the end, I’ll share why I believe it’s one of the most important parts of running a successful business. Let’s jump in.

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Understanding Financial Statements

How far do you think your business will go if you don’t understand your financial statements?

Knowing how to read these documents is key to knowing where your money is going and how your business is doing.

Here are the three main ones:

• Balance Sheet – Shows your company’s financial position at a certain point in time. You’ll see assets, liabilities, and equity. Some review this daily, others monthly or quarterly. I personally recommend monthly.
• Income Statement – Also called a profit and loss statement, this shows your business’s revenues, expenses, and overall profit (or loss) for a period.
• Cash Flow Statement – This one shows all the money coming in and going out, helping you keep tabs on your cash.

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Key Terms You Should Know

If you’re starting a business, these terms should already be familiar — but if not, I got you:

• Assets – Things that bring in money, like cash, inventory, and equipment.
• Liabilities – Things that take money away, like bills, loans, and accounts payable.
• Revenue – All the money your business brings in.
• Expenses – What you spend to keep your business running, like rent, payroll, and inventory.

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The Double-Entry System

Let’s talk about the principle of double-entry bookkeeping. Every transaction impacts at least two accounts, keeping the accounting equation balanced:

Assets = Liabilities + Equity

You’ll also need to understand:

• Debits – Increase assets or expenses and decrease liabilities, equity, or revenue.
• Credits – Do the opposite. They increase liabilities, equity, or revenue and decrease assets or expenses.

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The 4 Basic Transactions

There are four key transactions you need to record:

1. Sales Invoices – Record of sales made on credit.
2. Purchase Invoices – Record of purchases made on credit.
3. Receipts – Money received by the business.
4. Payments – Money paid out by the business.

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Journals and Ledgers

• Journals – Where every business transaction is first recorded. It includes affected accounts, amounts, and a description.
• Ledgers – Where all journal entries are posted. Each account tracks a specific type of transaction, like sales or expenses.

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Chart of Accounts

This is your business’s full list of accounts organized into:

• Assets
• Liabilities
• Equity
• Revenue
• Expenses

It’s the foundation of your accounting system and helps you keep everything in order.

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Trial Balance

A trial balance lists the ending balances of all your accounts from the general ledger. It’s used to check that your debits equal your credits. This helps you catch mistakes early before preparing financial statements.

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Adjusting Entries

At the end of an accounting period, you’ll need to make adjusting entries. These update accounts before generating financial statements. Common examples include:

• Accruals (revenue earned but not yet received)
• Deferrals (expenses paid in advance)

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Financial Reporting

• Preparing Statements – Turn all your data into clear reports like the income statement, balance sheet, and cash flow statement.
• Analysis – Use these reports to see how healthy your business is and how well it’s performing.

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Technology and Bookkeeping Services

If you’re wondering how you’ll keep track of all these numbers — don’t stress. There are tools for that!

Accounting software like QuickBooks and Xero can:

• Automate your records
• Improve accuracy
• Generate reports easily

And if needed, there are professional bookkeeping services that can take care of this for you.

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Why Bookkeeping Matters

Bookkeeping is the backbone of your business. It helps you:

• Understand your financial position
• Catch issues early (like spending more than you’re making)
• Make smart business decisions
• Stay compliant with laws and accounting standards (e.g., GAAP or IFRS)

Plus, knowing this stuff means no one can just tell you anything — you’ll be able to look at your numbers and know what’s what.

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Final Thoughts

Bookkeeping might not sound exciting at first, but it’s a game changer for your business. It gives you control, confidence, and clarity. Whether you do it yourself or hire help, just make sure it’s done right.

Thanks again for being here, my friends. I appreciate your time! Let me know in the comments if bookkeeping is something you’ve been keeping up with — or if this post gave you a push to finally get it started.