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Accounting is critical to the success of any organization. It assists the company in tracking revenue and expenses, claiming lucrative tax deductions, adhering to numerous regulations and loan covenants, and providing information to investors, managers, and other stakeholders to help them make better business decisions.
Let’s take a closer look at each of these elements.
Here are some simple procedures to help you get started tracking financial data for your small business, preparing financial statements, and filing taxes.
The method you’ll employ to record financial transactions is one of the first accounting decisions you’ll have to make in your small business. The following are the two most common accounting methods:
Although the cash basis is simpler to use, the accrual method of documenting transactions provides a more accurate picture of actual revenue and expenses over time. Most small businesses that don’t carry inventory choose the cash basis. Large and inventory-heavy businesses may need to use the accrual method.
Open a company bank account and a business credit card, and use those accounts to handle all of your business’s income and expenses instead of your personal checking account or credit card. Keeping a clear record of company activities is much easier with a separate bank account.
It’s time to link your business bank account to your accounting software once you’ve established one. Most reliable accounting software can automate the accounting process by linking to your bank account and ensuring that all transactions are shown in your financial statements.
The most important thing is to make sure that every transaction is recorded correctly and in the correct account. To do so, you must review your transactions on a regular basis. For instance, the programme might have classified a transaction as “Office costs” when it should have been “Software subscriptions.” You’ll get more useful results from your accounting software if you categorize transactions into the appropriate categories.
Keep track of all vendor invoices (also known as accounts payable) and make sure you have enough cash on hand to pay suppliers on time. You’ll avoid late fees and keep your merchants pleased if you do it this way. If merchants provide discounts for paying early, you should take advantage of them to save money.
Keep an eye on any outstanding customer payments as well (a.k.a. accounts receivable). Slow-paying clients can affect your capacity to pay your own obligations, and the sooner you recognize and address payment collection issues, the better.
You may be wondering whether you need to preserve copies of invoices, receipts, and other accounting records now that you have a business checking account and an accounting system to capture all of your financial transactions. Yes, it is correct.
If any taxing body decides to audit your company, the auditor will require more than bank statements and accounting system reports. They’ll also want to examine supporting material that demonstrates:
The transaction’s start date
Whom you paid and how much you paid
A description of the purchase that proves it was a business expense.
You (or your accountant or CPA) must record adjusting journal entries at the conclusion of the accounting period to record any transactions that do not affect your bank account. Adjusting journal entries are divided into three categories:
At the end of the month, quarter, or year (or any time in-between), you can generate financial reports from your accounting software.
Depending on your business, you may use several different financial reports. Here are the most common financial reports used in small business accounting:
How Finanshels can help
For most entrepreneurs, learning how to do accounting for a small business isn’t exactly a passion project, but it is necessary for getting the financial information you need to run a successful business.
Of course, if the demands of running a business mean you just don’t have time to learn QuickBooks, or if you’d rather leave your bookkeeping to a professional, try **Finanshels** (that’s us). We give you a team of bookkeepers to handle your bookkeeping and simple software for keeping track of your business finances.