Did we lose you at ‘Accounting Journal Ledger’? Not to worry, it really is simpler than it sounds. An accounting journal ledger is a bookkeeping journal that should be used daily to record all transactions. Just like a personal journal that records what happens in one’s personal life, an accounting journal records what happens in the daily life of the business.
If you currently aren’t in the habit of using an accounting journal ledger, we highly recommend you start. Doing this good bookkeeping practice or hiring a professional bookkeeping service to take on the task, will ensure that you are reconciling your transactions on a regular basis. Whether you hire a bookkeeping service or choose to take the task on yourself, keeping your books up to date is a very important part of running a successful small business. Having an up to date accounting journal ledger will give you clarity into your financial position which will allow you to:
Make smarter business decisions
Be prepared for tax season and making HST payments
Have insight into your biggest sources of revenues and expenses
Plan for large capital or resource purchases
Avoid being surprised by the look of your income statement
Owning a small business can be a very fulfilling journey, but it is important not to lose sight of your financial picture (in fact, this is one of the top mistakes made by small business owners). Although it can seem daunting to add the cost of a bookkeeping service to your expenses, having someone knowledgeable to manage your accounting journal ledgers can be one of the best decisions you can make.
If you do feel that you can handle the responsibility on your own, the following few tips can help you set up your accounting journal ledger.
Choose your method. Nothing wrong with the old pencil and paper method if that is what feels right to you. Get a lined notebook (you can even buy journal specific notebooks) to get you started. Otherwise, a spreadsheet on your computer or using accounting software is another option to consider. Pick the one that is easiest for you so that you stick with it and keep the accounting journal ledger up to date.
A basic accounting journal is set up with five columns – date, description of the transaction, the debited amount, the credited amount and a column for reference (the cheque number for example).
Depending on the type of business you run, you may want to set up more than just a general accounting journal ledger. Consider whether it is worth getting more specific and having a separate journal for sales and another for purchases.
Take some time to understand how to properly enter journal entries for prepaid revenues or sales that are invoiced and payment is not received right away.
There is no doubt about it, having an up to date accounting journal ledger is a time consuming but critical task. Hiring a bookkeeping service can save you many hours of pouring over receipts, sales and transactions and let you get back to working on your business instead of in it!