The Ultimate Guide to Small Business Bookkeeping in Colorado

What Is Small Business Bookkeeping?

Small business bookkeeping is the process of recording, categorizing and organizing a company’s financial transactions. Depending on the business, this may include:

• Recording sales and other income
• Categorizing business expenses
• Reconciling bank and credit card accounts
• Tracking customer invoices and payments
• Recording vendor bills
• Maintaining payroll records
• Reviewing accounts for errors or duplicate entries
• Preparing financial reports
• Organizing supporting documents for a CPA

Bookkeeping records what has already happened financially. Those records can then be used to create reports, prepare tax returns and support business decisions.

The IRS explains that good records can help business owners monitor their progress, prepare financial statements, track expenses and support information reported on tax returns.

 

Separate Business and Personal Finances

Keeping business and personal activity separate is one of the most important steps you can take to simplify your bookkeeping.

Consider using:

• A dedicated business checking account
• A separate business savings account
• A business credit card
• A consistent process for recording owner contributions and withdrawals

Separate accounts make it easier to determine which transactions belong to the business. They can also reduce the time spent reviewing purchases during account reconciliation and tax preparation.

The IRS recommends keeping separate business and personal accounts because doing so makes records easier to maintain. Personal expenses generally are not deductible business expenses, although some costs may include both business and personal use. Your CPA or tax professional can help determine the appropriate treatment for mixed-use expenses.

 

Track Income From Every Source

Small businesses may receive income through checks, credit cards, bank transfers, cash or online payment platforms. Your bookkeeping system should account for income from each source without recording the same payment twice.

For example, when a payment processor deposits money into your bank account, the deposit may be lower than the original sale because processing fees were deducted. Recording only the net deposit can understate both income and expenses.

A consistent small business bookkeeping process should track:

• The original amount of the sale
• Applicable discounts or refunds
• Processing fees
• The final amount deposited
• Outstanding customer invoices

Tracking income correctly helps create more useful sales and profit reports.

 

Record and Categorize Business Expenses

Every business purchase should be recorded and assigned to an appropriate category. Common expenses may include advertising, software, insurance, rent, supplies, professional services and contractor payments.

Maintaining accurate records does not mean every purchase automatically qualifies as a tax deduction. An expense must meet applicable tax requirements, and certain expenses may have special documentation or deduction rules. Consult your tax professional when you are unsure how an expense should be treated.

Keep supporting documents such as:

• Receipts
• Vendor invoices
• Credit card statements
• Bank statements
• Loan statements
• Mileage records
• Payroll reports
• Equipment purchase documents

Digital receipt storage can make documents easier to find, but you should use a consistent naming and filing system.

 

Reconcile Accounts Regularly

Reconciliation compares the transactions recorded in your bookkeeping system with the transactions shown on your financial statements.

During reconciliation, you may discover:

• Missing transactions
• Duplicate entries
• Incorrect transaction amounts
• Bank fees or interest not yet recorded
• Customer payments applied incorrectly
• Unauthorized or unfamiliar charges
• Checks that have not cleared

Monthly reconciliation is a good practice for many businesses because questions can be resolved while transactions are still recent. Businesses with a high volume of activity may need to review accounts more frequently.

Connecting a bank account to QuickBooks Online can help import activity, but downloaded transactions still need to be reviewed and categorized. A bank connection does not replace reconciliation.

 

Stay Current With Customer Invoicing

If you invoice customers, your bookkeeping system should show who owes money, how much is outstanding and when payment was due.

A consistent invoicing process may include:

• Sending invoices promptly
• Clearly describing the products or services provided
• Including payment terms and due dates
• Recording payments when received
• Reviewing accounts receivable regularly
• Following up on past-due balances
• Documenting credits, refunds and adjustments

Keeping invoices current can help you better understand expected cash flow. However, revenue shown on a report does not always mean the money is already available in your bank account, particularly when customers have not yet paid.

 

Review Your Financial Reports

Financial reports are most helpful when the underlying bookkeeping is accurate and current. Reports small business owners commonly review include:

Profit and Loss Statement

A profit and loss statement summarizes income and expenses over a selected period. It helps show whether the business generated a profit or loss.

Balance Sheet

A balance sheet shows the company’s assets, liabilities and equity at a specific point in time.

Statement of Cash Flows

A statement of cash flows shows how cash moved through operating, investing and financing activities.

Reviewing reports monthly or quarterly can help you identify trends, rising expenses and areas that require further attention. Your bookkeeper can explain what the reports contain, while your CPA or financial advisor can provide guidance within their professional areas.

 

Understand Colorado Bookkeeping Requirements

Bookkeeping requirements vary based on business structure, employees, products, services and tax obligations.

Colorado retailers, for example, must maintain records needed to determine the correct amount of sales tax. The state’s Colorado Sales Tax Guide explains that retailers generally must preserve specified sales-tax records for at least three years.

Businesses with employees may also have Colorado wage withholding, unemployment insurance and payroll recordkeeping responsibilities. Because requirements differ, work with qualified tax, legal or human resources professionals when determining which rules apply to your business.

 

Create a Monthly Small Business Bookkeeping Checklist

A monthly checklist can make bookkeeping more manageable. Your routine may include:

• Recording income and expenses
• Reviewing uncategorized transactions
• Saving receipts and invoices
• Reconciling bank accounts
• Reconciling credit cards
• Reviewing unpaid customer invoices
• Reviewing outstanding vendor bills
• Confirming payroll entries
• Running financial reports
• Identifying questions for your bookkeeper or CPA

Completing these tasks consistently can prevent several months of unfinished work from accumulating.

Small Business Bookkeeping in Arvada, Colorado

Wild Growth Financial provides small business bookkeeping for companies in Arvada and surrounding communities, including Westminster, Wheat Ridge, Golden, Lakewood, Broomfield and the northwest Denver metro area.

Owner Annie Anderson works directly with business owners to help keep their records accurate, organized and understandable. Wild Growth Financial offers monthly and quarterly bookkeeping, catch-up bookkeeping, payroll processing and personalized QuickBooks Online training.

Schedule a free consultation with Wild Growth Financial to discuss the bookkeeping needs of your Arvada-area small business.