Bookkeeping Examples: From Payroll to Tax Compliance

Getting started with accurate bookkeeping for your online business can be intimidating. You may have questions such as:

• Where and how do I record every transaction? 
• Must I keep every receipt and deposit slip?
• How do I reconcile my accounts with my payment processor and bank statements? 
• Are there bookkeeping examples I can emulate?

But don’t worry. In this guide, we explore what bookkeeping is, its importance, and various examples of small business bookkeeping that you can model. 

The trouble is that even when you emulate bookkeeping examples perfectly, the practice can still be a chore.

That’s where we come in. You can hire us as your dedicated bookkeeper and keep your bookkeeping worries aside. 

With our monthly bookkeeping services at AccountsBalance, your finances are well-organized, helping you gain the clarity you need to make informed financial decisions. 

You can also ensure compliance through our clean-up and catch-up services, which help bring your outdated records up to speed.

We’ll deliver accurate books between the 15th and 20th of every month so you can focus on what you do best: growing your business. 

Reach out for a free call with our founders to get started. 

What Is Bookkeeping and Why Is It Important?

Bookkeeping is the regular and systematic recording, organizing, and tracking of a business’s financial transactions. 

While businesses do bookkeeping for many purposes, the main one is to monitor their financial health through three key reports: balance sheets, cash flow statements, and income statements. 

Bookkeeping is one of the three parts of accounting, the other two being tax and CFO services. Bookkeeping forms the solid base for these parts. 

Now, let’s see why bookkeeping is important:

• Promotes Informed Decisions: You can use the data available in financial reports to compare different periods for strategic planning and to develop realistic goals. Externally, investors and financial institutions can use the information to make informed investment or lending decisions. 

• Helping You Budget Accurately: Tracking and recording your expenses and income makes reviewing your financial costs and resources simple. You can easily plan for future expenditures to facilitate business growth. 

• Being Prepared for Tax Season: Monthly bookkeeping services prepare you for end-of-year tax filing. You’ll have all the necessary information, ensuring compliance and easy filing. 

• Maintaining Organized Financial Records: Bookkeeping promotes accuracy and accountability as each financial transaction is documented correctly, reducing the risk of errors and discrepancies.

• Ensuring Regulatory Compliance: As a legal requirement in most jurisdictions, bookkeeping ensures you maintain industry-specific standards to avoid regulatory fines or penalties. It can also help reduce your tax burden within the confines of the law since you can easily meet all tax regulatory requirements. 

Now that we know what bookkeeping is and why it’s important, let’s consider some examples to understand the practice further. 

7 Bookkeeping Examples for Businesses

Before we dive deeper, it’s important to note that all the booking examples we’ll discuss will be as they would appear in a chart of accounts. We’ll also note how they should be recorded in the general ledger. 

For perspective, a chart of accounts is the mega list of all the accounts you use to record your transactions. You use it alongside the ledger for a fuller overview of all the accounts and transactions. 

The chart of accounts works best with the double-entry system, so all the transactions we’ll record here are double-entry bookkeeping examples.

We’ll see how a chart of accounts looks in the following seven examples of bookkeeping for a small business:

1. Sold Goods in Cash

You sold some goods worth $350 in cash. Here’s what the chart of accounts (COA) looks like for the cash sales transaction:

You’ll debit $350 to the cash asset account and credit $350 from the revenues account since revenue is always recorded as a credit. 

2. Bought Inventory on Credit

You purchased stock worth $500 on credit:

Since inventory is an asset, you’ll debit $500 to the inventory asset account. You’ll also credit the accounts payable liability account by $500 because you bought the goods on credit. 

3. Bank Loan

You accepted a bank loan of $1,200:

You’ll debit your cash asset account because you have received cash and credit your accounts payable or loans payable liability account because you’ve added a liability. 

4. Interest Incurred on Credit

You incurred $200 as interest on credit but haven’t paid it yet:

You’ll debit $200 to the expense account since you are already in debt and credit the accounts payable liability account by $200 because you haven’t paid the interest yet. 

5. Injected Personal Cash into the Business

You invested $3,500 of personal funds into your business:

When you inject $3,500 of personal funds into your business’s cash account, the cash asset account will be debited by the same amount. The $3,500 will be credited to the owner’s equity account because now the business owes you the same amount. 

6. Payroll

You paid $1,400 in salaries, including taxes and deductions:

You’ll debit the expense account by $1,400. Because you’ve reduced your cash, credit the same amount from the cash asset account. 

7. Paid Sales Tax Collected from Customers

You paid $300 you had collected as sales tax from your customers:

You’ll debit the liability account by $300 and credit the cash asset account because the payment has reduced your cash account. 

Bookkeeping Best Practices

Now that you have some double-entry bookkeeping examples to guide you, let’s check out some common best practices to smoothen the process:

• Always Keep the General Ledger Updated: The general ledger shows all the accounts that group and store your financial transactions. Keeping the ledger updated makes bookkeeping easier. 

• Separate Business and Personal Finances: You should keep your personal and business funds separate to reduce the risk of misrepresenting your business finances. 

• Reconcile Your Books Regularly: You should ensure that what appears in your books matches the events and amounts in your bank accounts, business credit card statements, and other financial records. For a small business, reconciliation should happen at least once every month. 

Following bookkeeping best practices can help you spot discrepancies early and fix issues before they grow big.

Should You Outsource Your Bookkeeping?

Based on the following critical questions, you can decide whether to outsource your bookkeeping or not:

• Do I Have Bookkeeping Expertise?

If you or no one on your team has bookkeeping training or knowledge, you can outsource to someone who can handle a bookkeeper’s responsibilities. 

• Do I Have the Time?

Bookkeeping is time-consuming and time-sensitive. Outsourcing can take the obligation off your plate so you aren’t spread too thin, allowing you to focus on growing your business. 

• Can I Afford a Bookkeeper?

If your business can comfortably pay a bookkeeper, you can recoup the investment quickly. 

Why Choose AccountsBalance for Your Bookkeeping Needs?

Speaking of outsourcing, we know bookkeeping is tedious. But not for us. You can outsource your bookkeeping to AccountsBalance to regularly get financials you can actually understand and use to make decisions. 

The good news is that we offer more of a partnership than just an outsourced service. We take our time to understand your business and be part of your team to ensure a tailored approach. 

Here are other reasons you should let us handle your bookkeeping for you:

• We simplify the bookkeeping process to allow you to focus on growing the business.
• We provide dedicated bookkeepers who specialize in online businesses. They understand the complexities of online bookkeeping, such as following up on transactions from multiple channels and payment processors. 
• We offer many services, including monthly and catch-up bookkeeping. We also provide agency, Amazon, Shopify, and SaaS bookkeeping services. 
• We release financial reports on time, by the 15th of every month. So you won’t have to worry about when you’ll receive your books.
• Our pricing is fixed and transparent, with zero hidden fees. 
• We offer fast client support to fix issues, gather feedback, or answer your questions when needed. 

Get your business financials in order—leave your bookkeeping to us. 

Common Bookkeeping Mistakes and How to Avoid Them

Bookkeeping isn’t easy. Here are some common mistakes to avoid:

• Putting it Off Until Too Late: Neglecting bookkeeping makes it challenging to remember what transactions and receipts were for or how you paid them. Ensure you keep your books monthly, at the very least, to make reconciliation and financial reporting easier. 

• Mixing Personal and Business Funds: Putting your business and personal finances in the same basket makes bookkeeping harder and could expose you to legal risks if your business is sued or audited. You could also miss out on tax deductions. Have a separate business bank account and get a dedicated business credit card. 

• Ignoring Small Transactions: If you ignore small transactions, the final balances in your books and payment processors or bank accounts won’t match. You should always account for every penny and keep receipts for all transactions. 

• Not Hiring a Professional Bookkeeper: If you don’t hire a professional or decide to do it yourself, your complex bookkeeping needs may not be handled effectively. You should hire a bookkeeper from AccountsBalance to ensure your books are done accurately and on time. 

Frequently Asked Questions (FAQs)

Let’s wrap up with common questions about bookkeeping for small businesses:

How Often Should Businesses Reconcile Their Books?

The frequency of reconciling business books depends on one key factor: the volume of your financial transactions. 

Businesses with fewer transactions can reconcile their books monthly, while those with a higher number can do so weekly or even daily. 

The main thing is to reconcile frequently to catch errors early and address them. 

Can Bookkeeping Be Done Without Accounting Software?

Yes. You can do bookkeeping without accounting software, but manual methods like spreadsheets can be tedious, time-consuming, and frustrating. 

Accounting software eliminates most manual data entry and saves time and costs. 

How Can Businesses Prepare Their Books for Tax Season?

You can prepare your business books for the tax season in various ways:

• Working with bookkeeping professionals like AccountsBalance and tax professionals like CPAs.
• Ensuring all your business transactions are recorded.
• Ensuring your books are accurate and “balanced.”
• Starting preparations for the next tax year immediately after filing for the previous one.
• Ensuring all your bank accounts, loan statements, and credit cards reconcile with your bookkeeping. 

How Should Businesses Handle Payroll in Bookkeeping?

When recording payroll in the chart of accounts, you should debit the expenses account under the ‘salaries and wages expense’ sub-type. 

To maintain double-entry standards, credit the same amount from the cash asset account because you’ve reduced your cash account. 

Conclusion – Examples of Bookkeeping

These basic bookkeeping examples can be a great place to start recording your financial transactions to ensure accurate books and financial statements. 

The trouble is that identifying the correct accounts to credit or debit for each transaction can be tricky. 

If you don’t have bookkeeping expertise, it’s best to hire a bookkeeping service for accurate and timely monthly bookkeeping. 

At AccountsBalance, we’ll handle your online business bookkeeping needs, whether you are an agency, software company, freelancer, coach, course owner, or consultant. 

Experience hassle-free bookkeeping with a dedicated team—contact us for a free call.