Accounting or Bookkeeping in simple terms means recording of each and every transaction that appears in the business bank account and then balancing them. Some people refers Accounting as Bookkeeping as well. Please note that the business bank account should be always used for the business purpose. Personal expenses like groceries etc. must be paid through using your personal account. Using the business bank account to pay for the personal expenses can cause serious repercussion including disallowing your business as a separate entity.
Whether you operate your business as a sole proprietorship, corporation, partnership or any other business entity for that matter it is very important that the business entity is considered a distinguished entity separate from you-the business owner.
When a business is not considered as a separate entity then the personal bank accounts also can be dragged into the audit as well as in legal actions. The liability arising from the business can also be overflown onto the personal assets. It is just not a very pretty situation to be in. So please keep your personal expenses out of the business account. There are many other issues that also affect the respect by the taxing agencies and legal system to respect your business as a separate entity. However using your personal expenses out of the business account may put a stain in that respect.
The business bank account is simply any bank account that the business owner uses for business purposes only. It may be just one bank account or several accounts. More times than not the business uses Credit Card (s) which is solely used for the business.
We categorize each and every transaction to the appropriate account.
After recording the transactions, we then reconcile the software balance with the bank statement. This step is very critical. Because until the software balance is reconciled with the bank statement the books are not balanced. This is the Accounting, Bookkeeping process. This is very important and critical process for any business.
From this balanced books we prepare the Check Register, General Ledger, Trial Balance, Profit and Loss Statement and Balance sheet. These accounting reports are required and demanded should there is an audit from IRS or state taxing agency. Also these financial statements then become the blue prints to prepare the tax returns.