Bookkeeping Basics: Handling Your Income

Handling your income can be tricky, especially if you are the one doing the business as well as keeping track of your incomes and expenses. A novel and now widespread solution for this may be a simple take home salary calculator. But rather than just maintaining a diary where you jot down all your expenses, it is better to maintain records through a structured process of bookkeeping. This process can easily be facilitated by keeping in mind the infallible accounting golden rules.

Bookkeeping basically is a process of tracking, recording, and organizing financial transactions of a business so that you know where the money is spent and where the income is coming from. Regardless of whether it is used to track gross income or if it derives utility from the results of a take home salary calculator, it is the start of all accounting processes and is vital for the following reasons:-

Bookkeeping

– to track expenses, revenues and to figure out if the business is profitable; 

– to identify tax-deductible expenses; 

– to apply for business loans;

– to identify financial mistake such as making payment twice to the same vendor;

– to identify business challenges and proactively address them.

– to use transactions recorded as take home salary calculator 

Process – The following steps will help you get started with the basics of bookkeeping – 

1 –  Separate business expenses from personal expenses so that it is easy to differentiate what you are spending, earning and what is your net profit in the business. It would be ideal for opening separate bank accounts for business and personal finances to avoid legal problems.

2 –  Chose between a Single entry System or a Double entry system. A single entry system is a method where you record a transaction just once, i.e., when it happens. Whereas in a double-entry system, you record both aspects of a transaction, where your money comes from and where it goes.  Each entry has a debit and a credit. It means that each transaction (suppose an inflow) has an equal and opposite transaction (outflow). The debits and credits should always be equal, for then only is your book said to be balanced. Categorization between debits and credits is based on certain accounting golden rules. They are as follows –

Types of Account Golden Rules
Personal Account
  • Debit what comes in
  • Credit what goes out 
Real Account
  • Debit the receiver
  • Credit the giver
Nominal Account
  • Debit the expenses or losses
  • Credit the incomes or gains 

It is also inevitable to obtain an understanding of terms like assets and liabilities. An asset is a resource that generates revenue or provides future economic benefits to the business, such as debtors, cash, buildings, etc. Whereas liabilities are something that your business owes to outsiders, such as creditors, interest payable, etc. 

3 – Choose between Cash v/s Accrual basis of accounting. In a cash system, you recognize revenue when you receive it and expense when you pay it. On the other hand, in the accrual system, you recognize revenue as, and when it is earned, like when you raise an invoice, the income gets accrued, and you record it irrespective of whether payment is received. A cash system is preferred for small businesses, while an accrual system is ideal for medium to larger corporations.

4 – Choose a system to record transactions; it can either be manually on paper or in excel or by using accounting software. It is better to use accounting software to get an accurate picture of the business and to save time.

5 – Categorize expenses and incomes under various heads like wages, sales, purchases etc. 

6 – Organize documents/ receipts and store them both digitally and physically for future reference and audit purposes.

Rebecca Howell
After working 5 years as a Software Analyst in reputed MNC, Rebecca decided to settle down and work from home. Having an expertise in business & being a life motivator, she loves to share similar stuff on our website by the means of her articles.