While arts and crafts business owners work in the creative world every day, they also have to have a firm standing in the practical side of running a business. One of those many practical sides vying for your attention is keeping the books for your arts and crafts business. Not quite as fun as designing and whipping up a great arts and crafts sales item, but a business owner necessity.
Bookkeeping involves recording daily transactions in the accounting system, such as entering customer invoices and paying vendor bills. It also involves taking care of routine tasks and calculations such as running payroll and doing the bank statement reconciliation - which means you make sure the cash reflecting in your arts and crafts business checking account equals the cash you think you have by looking at your business checkbook balance.
As an arts and crafts business owner, you may keep your books yourself. Using an accounting software program like QuickBooks, it's easy enough to enter transactions.
Some small business owners hire a part-time employee or bookkeeping/accounting business to take the burden off the shoulders of the owner. In some arts and crafts businesses, the bookkeeper may also do double duty as your receptionist or errand runner.
The final product of all this book work is preparation of the financial statements, including the income statement, balance sheet and cash flow statement. As an arts and crafts business owner, you should be using the financial statements to make decisions on how to run your business - maybe finding a new vendor if your cost of goods sold is too high, or increasing prices on top sellers. Eventually, you use the financial statement to prepare your tax return.
If you are totally flummoxed or intimidated by getting started in this bookkeeping extravaganza, checking out my article introducing the accounting system is a great place to start your adventure! The first step in learning how to prepare financial statements is understanding the accounting system. The accounting system is how you get transactions occurring in your business to show up on your financial statements.
Accounting journals are a day-to-day recording of events. Accountants call journals the books of original entry since no transactions get into the accounting system without being entered into a journal first.
The first journals you'll want to explore are the cash journals. You'll have two cash journals: cash receipts and cash payments (some refer to the cash payments journal as the cash disbursements journal). First up is the cash receipts journal, which records cash your receive from customers, outside financing, asset sales or money you invest in the business.
The second cash journal, the cash payments journal records cash flowing out of your arts and crafts business. Some examples are when you pay by check, credit card or good ole paper money when buying supplies or paying for any other type of business expenses. This includes any payroll you may have for yourself or employees.
Please note: some small businesses also have a payroll journal that is the journal of original entry for payroll transactions. As a newbie bookkeeper/business owner don't worry about the payroll journal now - just keep this fact in the back of your bookkeeping mind.