Getting out of the shoebox - Bookkeeping basics

While keeping track of your business's finances may seem overwhelming, it's not that hard when you know the basics of accounting and bookkeeping. So throw out the old shoebox, and start booking right by learning some book keeping basics.
What is the point?
First and foremost it is important to understand why you do bookkeeping, what are your goals. Bookkeeping and accounting share two basic goals:
 To keep track of your income and expenses, which improves your chances of making a profit.
 To collect the financial information necessary for filing your various tax returns.
If you can keep these two basic goals in mind, your world of bookkeeping will become much easier. You will not get nearly as bogged down by the numbers, and think more of the overall picture. Don't get overwhelmed by the details of keeping your financial records, just stick to the basics.
What specifications are there?

When it comes to bookkeeping there is no requirement that your records be kept in any particular way. No law governs the process, or says you must do it this way or that way. All that the law says is that your records must accurately reflect your business's income and expenses. If you can do this then chances are the IRS will find them acceptable.
So what are the basics?
Bookkeeping basics are as simple as 1-2-3; in fact, if you follow these 3 steps, book keeping should no longer be a headache for you:
Step one: Keep receipts or other records (legal or acceptable, the IRS is not going to just take your word for it) of every payment to and every expenditure by your business. Where you keep these is up to you. A system many have found to work well is using folders, one outgoing, one incoming. How you handle your receipt tracking will depend on what system works for you, and volume. If you have a lot of expenditures and sales, then something more sophisticated then a file folder may be necessary. Try a computer program. The important thing to recognize is that each sale or purchase must be backed by a record. This record has to have the date, amount, and anything else necessary, such as who to, etc. And this record needs to be legitimate. So, get out of the shoe box, get a little more sophisticated method if you can.
Step two: You need to summarize your income and expenditure records on some periodic basis, whether that is daily, weekly, or monthly once again depends on the volume you do, and your particular personality. This is important because you will later use these summaries to answer specific financial questions about your business, such as whether you're making a profit and, if so, how much. You will want to summarize these posts into a ledger or sorts, and how often you do this will also be determined by your volume.
The ledger you use can be electronic (such as those provided with accounting software, like Quicken), or it can be by hand.
Step three: The last step is using your summaries to create financial reports that will tell you specific information about your business. This is probably the most important information about your business that you will ever have, such as how much monthly profit you're making or how much your business is worth at a specific point in time. So, do not skip this step, this is the step that puts the puzzle pieces together, this is where you compare income vs. expenses to see if you made a profit! You can use your accounting software, such as Quicken or Quick books to do this for you.
Bookkeeping does not have to be difficult, so it does not matter if you do your accounting by hand on ledger sheets or use accounting software, these principles are exactly the same. Learn them, stick to them, and you will see that you will never have bookkeeping problems again.

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