Requirements to Get Started with Bookkeeping Manually
So, to get started with Bookkeeping Manually (without software), we have just two requirements.
They are:
#1 – First, you must have a bank account that is used exclusively for business income and expenses.
#2 – Secondly, if you have a credit card, the same rule applies. The card must be exclusively used for business.
Step 1: Collect Your Statements
So let’s get started with Step #1. Grab all of your bank statements and your credit card statements because we’re going to start tracking your income.
Remember how I said your accounts should be used only for business? Why did I say that? Well, it’s going to make your bookkeeping so much easier and straightforward. And if you have a C-Corp or S-Corp it’s the only way to do it.
I emphasize keeping your accounts separate because as a licensed CPA in Orlando, I see this mistake often – people, too often, mix business income with personal income.
Step 2: Calculate Monthly Income
Calculating your monthly income is very simple. At the end of every month, look at your bank statement’s total deposits—that’s your income for the month.
For each month, write down the amount.
So for example purposes. I’ve created a sample ledger here for you.
Let’s say, you made…
- In January, you sold $2,000.
- In February, you made $2,500.
- In March, you earned $3,000.
- In April, you made $4,000.
Looks like you’re growing your business each month—great job!
Step 3: Track Your Expenses
Now that we have our income, let’s talk about expenses. Start by categorizing your bank and credit card expenses by type.
For example:
- Gas: $200
- Advertising: $1,000
- Bank charges: $10
- Utilities: $200
- Rent: $500
Combine both credit card and bank statement expenses for accuracy. Otherwise, your numbers will be off.
Step 4: Total Your Monthly Finances
Add all your total expenses.
So, for example, for January we will use $2,110 for our expenses.
And our income was $2,000, that’s a loss of $110.
Repeat this process for each month. Your expenses will change as your business grows.
Step 5: Summarize the Year
Continue recording from April to December. By the end of the year, you’ll have everything ready for your tax return.
So, if we add up January through April, the total income is $11,500, and let’s pretend the total expenses for this time frame are $8,695.
To get your net income, we would follow this simple formula.
Income – Expenses = Net Income
If we follow our example here. your net income would be $2,805 ($11,500 – $8,695).
Important Tips and Reminders
Keep in mind:
- Credit card expenses must be included monthly
- Track products if you’re selling goods
- Include dues, subscriptions, and other costs
All expenses must be ordinary and necessary for your business.
Why Manual Bookkeeping is Worth It
This is basic bookkeeping. If you’re a small business owner, you can do this yourself.
It takes time, but it helps you understand your business better.
As your business grows, you can bring in help. But starting out manually is a smart move.
Free Excel Template
Now, if you are looking to better organize your business finances, be sure to check out our Self Employed Income and Expense Sheet.
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