Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Your business in Winnipeg is gaining traction. More people are inquiring, and you've sold two widgets this week compared to the previous week's one. So you want to do some bookkeeping in your Winnipeg business to quantify “how much” your business is growing.
But you have no idea how to balance bookkeeping in Winnipeg with running your business. You've never really warmed up to it back in college.
No matter: here's a quick refresher.
Mediums for Bookkeeping in Winnipeg
Journal and Ledger Books
Before the invention of personal computers, bookkeeping was done using workbooks known as journals and ledgers.
Today, this method is tedious because you have to write down the numbers. You also have to calculate the totals manually. Nevertheless, doing your books with this medium is great if you're not so tech-savvy.
Small business owners who are reluctant to buy accounting software use spreadsheets. What's great about spreadsheets is that they can be easy to put together. You can rearrange, label, and put layers of formulas within the cells so that you don't have to do the arithmetic manually.
This medium is the go-to option for Winnipeg bookkeeping services. Accounting software doesn't require you to manually input transactions, unlike spreadsheets or books. Instead, you set up the accounting software and let it do its work. This automation feature removes the hassle of inaccurate recording and classifying of every transaction.
If you want to know the principles but don't want to do the work, this is the right bookkeeping medium for you.
If you're going to tackle bookkeeping for your business, it's important to understand these fundamental principles.
The Accounting/Bookkeeping Equation
All of accounting and bookkeeping boils down to this simple equation:
A = L + E
Assets are equal to liabilities plus equity or capital. This equation shows everything your business has: what it owes and what it owns.
If you want to produce a balance sheet, the amount in the asset column and the combined amount of your business' liabilities and equity must be the same. To achieve this balance, your books must pass a test called the “trial balance.”
Here are the definitions of each value to get a complete understanding of this equation.
Assets put a monetary value on everything that your business owns, whether they’re purchased or donated. Petty cash, equipment, intellectual property, inventory, office equipment—these are all under assets.
Simply put, these are what your business owes in both the short and the long term. That payment you haven't made to your supplier is a liability, as well as the taxes you haven't yet paid and the business loans you've been granted.
Equity can be anything you own that you have invested in the business. The equity is the portion of the equation that calculates the value of your ownership and the proportion of your profit.
If you're putting only $100 in the business, then your equity is only worth $100. You will gain (or lose) based only on that value.
The Double-Entry Method
The double-entry method is the process through which bookkeepers keep the accounting equation balanced.
The idea behind the double-entry method is that every transaction must have an incoming (debit) and an outgoing (credit) account assigned to it. In giving, something must be received.
For example, you made a $10.00 sale of merchandise you sold. The double-entry method would enter the amount into two accounts, one for debit and one for credit.
Debit: Cash - $10.00
Credit: Merchandise - $10.00
This $10.00 journal entry says that you have received $10.00 cash from your customer, and you also gave merchandise worth $10.00.
Make Bookkeeping in Winnipeg Less Confusing
We hope the accounting and bookkeeping concepts we laid out in this article helped. Still, they have their complexities that we would like to help you with. Let's uncomplicate those and help you understand the process better. We offer bookkeeping in Winnipeg for small businesses like you looking to set up a bookkeeping system and learn the process along the way. Talk to us, and let's unloop these concepts so that you can unloop your business.