A business account also allows you to accept credit card payments and establish business credit. In addition, you may eventually want to grow your business―having a business bank account can be an important sole trader bookkeeping factor if you want to take out a loan or set up a line of credit. It’s not uncommon for potential investors and clients to view a sole proprietorship as less professional than a corporation or LLC.
Online tools allow people to work from anywhere, and manage their business without being tied to an office. Accounting software, for example, makes it easier to stay on top of tax, revenue, expenses and cash flow, and automate some of these tasks, without ever needing to sit at a desk. This represents quite an upgrade in complexity from the basic accounting system outlined in this article for a sole proprietorship. Based on the income and expenses you’ve entered, Taxumo can quickly generate the entries that need to be in your various books of accounts in the correct format. It also saves you much needed time and energy when it comes to filing your taxes.
Overview: What is bookkeeping?
If you plan to use any name other than your personal name, you’ll register a DBA name. For instance, Jane Smith doing business as “The Wedding Seamstress.” You are still operating as a sole proprietor but choosing to run your business under your business name. Make sure that no other business has your name by doing a search within your jurisdiction. As a freelance accountant, you would work with small-business owners and audit their inflow and outflow of cash. Be sure to be proficient in at least one accounting software, such as QuickBooks or FreshBooks. It’s also wise to build a good credit history before starting your business.
The fees you’ll pay during this process are nothing compared to the fines you’ll pay if you haven’t filed the right paperwork. As a sole proprietor, the legal name of your business is your personal name. However, if you want to operate under a different name, say, “Global Business Consulting Services,” you’d want to register a fictitious or “doing business as” name, also known as a DBA.
Bookkeeping Basics for the Small Business Owner
It will also save you from forgetting your tax dues and getting penalties. For example, if you prepare and post an invoice in the amount of $150 to John Brown for consulting, you’ll need to record that information in a journal entry. Debits are recorded on the left side of an accounting ledger, while credits are recorded on the right side of the ledger. However, for the novice, the introduction of bookkeeping-specific vocabulary and the rules that govern proper bookkeeping processes can be overwhelming.