Many of the clients I have worked with made a concerted effort to manage their own bookkeeping before seeking help elsewhere.  And for the most part, the biggest cause of their reports not coming out quite right or the bank account refusing to reconcile came down to their books not being set up correctly to begin with.

The advent of user friendly accounting software made bookkeeping seem, well, easy.  It is not to say these software programs, Quickbooks being the most widely used by small business, do not have their value.  I use them everyday for my clients and I think their ease of use is beneficial.  Knowing some basic accounting concepts will help the small business owner to problem solve when something goes awry or know the importance of reconciling each and every month.

A few tips for setting up new books:

Always be sure to enter correct opening balances for your reconcilable accounts such as Bank Accounts, Credit Cards, Loans, Line of Credit, PayPal.

Be consistent with your Chart of Accounts.  Use the standard names that are given with the software you use.  The only deviation to this would be using the last 4 digits of account numbers for bank accounts if you have more than one.  Keeping with standard account names helps when and if a bookkeeper or your accountant reviews your books.

Account for your start-up costs and your personal investments in the company.  If you had expenses that you paid out of your own pocket, post them in an equity account.
 

If you prepay items such as insurance, be sure to put those payments into an asset account called ” Prepaid Insurance” and adjust against it monthly.  The expense should be distributed for each month and an leftover from one year to the next stays as an asset.

Keep your business and personal expenses as separate as possible.  Ideally, they are completely separate, but I know from experience that sometimes they mix.  Keep track of any personal expenses you used with business money and post them to owner’s draw.  And of course any business expenses should be captured by your business as well.
 

Reconcile each and every month for any and all bank and credit accounts.  This is the only way you will know if everything balances and is correct.  Yes it can be time consuming but it is well worth it.