Before computers and complex bookkeeping and accounting programs accounting systems were all on paper in a format called a ledger book. This is very similar to a spreadsheet and fairly straightforward for any business that is small enough. Setting up this bookkeeping system is rather simple and only requires a few accounts. Here’s how to do it!
Basic Bookkeeping - List All Accounts
The accounts shouldn’t be too many or it will get confusing. The more that one understands about bookkeeping and accounting, of course, the more accounts that can be tracked in a spreadsheet or manual ledger system. Begin with the easiest and most obvious accounts. These are:
- Bank account – probably the most important, as it is a control account that almost everything else flows through.
- Revenue – this is everything the company brings in, regardless of source
- Sales Tax Collected – this is the amount over the base price that something is sold for that is remitted to the government for taxes charged on a sale the company makes.
- Sales Tax Paid – this is the amount that the company pays on its supplies, materials, rent, and any other taxable goods that it pays for.
- Cost of Goods Sold – this is the materials or items that are sold directly to a client. There could be sub-accounts here, depending on the business. For most retail businesses this is simply the inventory that is sold. For any manufacturing business it is the cost of materials and labour that go into creating the products sold.
- Office Expenses – paper, pens, staplers, and so forth.
- Rent – for home based businesses this is the portion of household expenses allocated to the business, as per tax agency guidelines.
- Auto Expenses – this is NOT the cost of an automobile that is bought for the company; rather, it is the expenses of operating the company vehicle. If it is a personal vehicle being used for company purposes, it is easiest to track the mileage used for each of business and personal expenses and apportion the expenses according to the usage. If the company is incorporated, then one can use a per mile (kilometre in Canada) rate, up to the maximum determined by tax agency guidelines.
- Telephone
- Insurance
- Advertising
- Bank Fees
A simple small business may have only these accounts, at least if it is a proprietorship. Such a business wouldn’t require a payroll account if there were no employees other than the owner. However, a corporation would.
More Complicated Accounts in Bookkeeping
Payroll accounts can become complicated, as there are income taxes, and other deductions that the payroll is likely subject to. In this instance, make sure to get any federal or state guides that are available in order to set up all of the accounts for payroll. These should often be tracked separately, as they are very important to track correctly and fully for tax purposes.
As well, there may be fixed assets. These are long term expenses - items that must be amortized (depreciated) over more than one year. As these are more complicated, it is best to get help or read further before tackling these accounts.
Loans and credit cards are other accounts that some small businesses may have. This is like tracking account payable, which is the amounts borrowed and owed to vendors.
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