If you’re a small business owner, you’ve probably had to sit down and look at your finances. However, there’s also a pretty good chance that you’re busy, which can lead to poor financial management. What steps can you take to stop that from happening to your business? Well, you can use journal entries. They’re a good way to keep tabs on your finances, so let’s talk about how you use them properly.
What is a Journal Entry?
A journal entry is how you keep track of the day-to-day business operations.
You’ll record your finances through a journal entry as a rough draft. When you add them back to the ledger or books that you have, that’s what we’d call your final draft.
It’s absolutely a must for both entries to be detailed and accurate so that you can refer back to them. You’ll benefit from making the process of filling in the day’s transactions before you stop working. You can think of the ledger or books as being the summary of all transactions, and it’ll give you an idea of how well the business is doing.
The thing with journal entries and ledgers is that you use them for the purpose of preparing financial statements. This includes things like your income statement, cash flow and balance sheet. This is all the needed information for filling out a tax return.
For this reason, it can be vital to have accurate journal entries from the beginning of your business. You need to ensure that you’ve added the correct information. You need to know the information is correct because if it’s not, then all of your financial statements could be affected.
You run the serious risk of making bad business decisions based on information that is not suitable for your needs. You need to make sure that whoever is handling your finances is being accurate and honest about the information recorded.
How to Use Journal Entries
Using a journal entry can be challenging if you’re not familiar with how bookkeeping works. There are two different styles of journal entry which are single and double. We recommend that beginning businesses stick to the double-entry method. There are two categories in this method which we use, and these are general journals and special journal entries.
General journal entries are for any entry that doesn’t fit into the special journal section. This includes income and expenses from your interest. You could also use this section to record any adjusting entries that you’ve made.
Your special journal is all about day-to-day interactions. These are known as your accounts, and they typically cover a wide range of different aspects of business, including the following:
- Any accounts receivable
- Your sales
- Your refunds and sales returns
- Your purchases
- Cash receipts for money you’ve received
- The money you owe as accounts payable
- Any equity that is released
Any business should have a clear understanding of its finances, and it starts by making sensible decisions with your journal entries. Probookkeeper is here to help with any and all challenges you may face.