A beginner’s guide to bookkeeping

Starting a small business or trying to organise your finances? 

You’ve probably been told you need “good bookkeeping”, but what does that really mean and how do you start? 

This beginner-friendly guide explains the bookkeeping basics in simple terms. No jargon, just what you need to know to feel confident and in control. 

What is bookkeeping?

Bookkeeping is the process of tracking and recording all the financial activity in your business. But what does that mean exactly? 

Think of your business like a bucket of money. Sales fill it up, and bills or expenses drain it. Good bookkeeping means you always know what’s in the bucket, where the money came from, and where it went. 

Let’s break down the three key areas of bookkeeping:

1. Bank reconciliation 

Bank reconciliation is the process of making sure the bank balance in your accounting software matches the actual balance in your bank account on the same date. 

Reconciling your bank account involves:

• Entering all bank transactions into your accounting software. Bank feeds make this easy by connecting directly to your bank and automatically pulling in the transaction data.

• Categorising each transaction to a relevant account. An ‘account’ is simply a label or category that helps you understand what the transaction was for (e.g., a bank fee would be assigned to ‘Bank Fees’, while a sale would be ‘Sales Revenue’. 

• Checking that the balance in your software matches your actual bank account balance for that date. If they match, your account is reconciled! 

Common challenges: 

• Missing or duplicate transactions can throw your reconciliation out. 

• Sometimes bank feeds miss entries or bring in errors. 

• It’s easy to accidentally assign a transaction to the wrong account.  

Pro tip: Reconcile your accounts regularly (at least once a month) to catch issues early and stay organised.

2. Accounts receivable

Accounts receivable (AR) refers to the money your customers owe you. These are unpaid invoices - sales you’ve already made, but haven’t been paid for yet.

Managing your AR process using your accounting software involves: 

• Sending invoices after completing a sale or service, including key details like the customer’s name, invoice date, due date, and the amount owed.

• Reviewing outstanding invoices regularly - weekly, fortnightly, or monthly to identify overdue or soon-to-be-due payments.

• Following up on overdue invoices to remind customers and encourage timely payment.

Common challenges:

• Forgetting to send invoices or marking them as paid when they’re not.

• Allowing overdue invoices to go unnoticed. 

• No follow-up system.

Pro tip: Use your accounting software (like Xero) to send reminders and offer easy online payment options.

3. Accounts payable

Accounts payable (AP) is what your business owes to suppliers, contractors, or bills for services. These are your unpaid expenses.  

When you handle your AP using accounting software, it typically includes:

• Entering each bill you receive into your software, including key details like the supplier name, invoice date, due date and amount. This helps you know what needs to be paid and when, making budgeting and tax time easier.

• Reviewing outstanding bills regularly - weekly, fortnightly, or monthly to avoid missed payments or late fees.

• Processing payments when they’re due (not earlier). This helps you hold onto your cash longer, and improve cash flow.

Common challenges: 

• Paying bills too early or too late can disrupt your cash flow.

• Overpaying or double-paying due to poor record keeping.

• Forgetting to track payments made outside your main bank account. 

Pro tip: Regularly review your unpaid bills and set reminders or automatic payments to avoid missing due dates.

Our final thoughts

Bookkeeping doesn’t have to be overwhelming. With a basic understanding of how to reconcile your bank account, track money owed to you, and manage bills you need to pay, you’ll already be ahead of many small businesses. 

Whether you do it yourself or get help from a bookkeeper, having accurate and up-to-date financial records puts you in control. You’ll make smarter decisions, stay compliant, and feel less stressed when tax time rolls around. 

Next steps

• Choose a simple accounting software (like Xero, MYOB, or QuickBooks). 

• Set a regular schedule (weekly, fortnightly or monthly) to review and update your records. 

• Don’t be afraid to ask for help! A good bookkeeper can save you time, money, and headaches. 

Book your free consultation today!