How to Set Up A Business Ledger For a Home-Based Business: Setting Up Your Business Ledger

Setting up a business ledger for a home-based business is important for entrepreneurs and other new business owners. Knowing how to set up a business ledger properly will prove helpful. You may or may not have some familiarity with business ledgers.    

What is a business ledger?

Dictionary.com suggests that a business ledger is a “collection of an entire group of similar accounts in double-entry bookkeeping” or a “book of final entry”.

What does a ledger contain? In professional bookkeeping, "a ledger records classified and summarized financial information from journals (‘the books of first entry’) as debits and credits, and shows their current balances.”

Consider the following when setting up a business ledger for a home-based business.

You may be able to take a course in basic bookkeeping to brush up on your current book keeping skills, even if you have understanding of what is involved. A refresher course in bookkeeping can help to re-familiarize you with the basics of account data organization and record keeping.

Your ledger will consist of two parts, referred to as a book of first entry and a book of final entry.

The book of first entry

Set up a book of first entry with respect to your home based business, so that you have an accurate record of your debits and credits documented on a monthly basis. This will be a record of your bills, as they come in and your payments, as you make them. It will also include purchases, refunds, etc. When you are setting this up, make certain that your transactions pertain strictly to your home-based business, as it may be difficult to separate them from your personal transactions later.

To set up your book of first entry, keep it relatively simple by using a loose-leaf binder with dividers and a separate page for each account. While you can simply list every event as it occurs, it will be easier to work with separate pages. Organizing your accounts properly from the beginning will simplify things for when you need to file your income tax at the end of the business year.

Note that with any home based business, there will be a percentage of your household utilities and other expenses that you can claim on your income tax, so document them carefully. The same is true with respect to your vehicle, maintenance, gas and tires. You may also be able to claim some of your travel expenses.

Setting up your new, home-based business office may require initial purchases like a computer work station or desk, printer, bookshelves, and filing cabinet. You will need other supplies like printer paper, an account book, paper and envelopes. Remember to include the purchase of a computer, fax machine, printer, smart phone or office phone. When you have business cards printed, these can also be included.          

If you use a computer to set up your book of first entry, this becomes a system of interlinked files with the same basic principles.

The book of final entry

The account information from the book of final entry takes on summary form, rather than individual entries. The book of first entry and the book of final entry must be in agreement, in other words, without any obvious discrepancies that may be subject to questions by an accountant when your income tax forms have to be filled out.

Caution should be taken when relying on computer documentation of accounts for a home-based business, as confusion can result if there are lost files. Creating a back up file for your business ledger or printing out a hard copy of it is often a good idea.

The use of spreadsheets can prove beneficial when preparing the book of final entry. The account data from the book of first entry must be in agreement with the account information on a spreadsheet, if that becomes your book of final entry.

Spend time discussing your home-based business with your accountant prior to setting up your business ledger, as that can help you to avoid unnecessary work and will assure your accountant that both you and your home-based business are credible, as well as on track right from the beginning.