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Accounting for Small Businesses

3 Mins read

Finance is the foundation of every business whether it’s big or small. It’s necessary to keep track of every financial transaction. Here is the importance of accounting. Accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results. 

As you start small business accounting is very critical. It allows you to keep all the records of transactions and financial information. In this section, we are going to discuss ways to maintain accounting for small businesses.

How to do simple bookkeeping for a small business?

Bookkeeping is the process of recording a company’s financial transactions. Bookkeeping involves making source documents for all transactions, operations, and other events of business. Here are some terms that are essential when doing bookkeeping.

 

  1. Analyzing Financial Transactions

The process of accounting starts with analyzing financial transactions. Also it’s important to prepare source documents. It involves documenting every transaction that has an impact on your company. It helps to show how your business transactions impact your assets, liabilities and equities.

 

  1. Separate Personal and Professional Finances in Accounting

It’s important to make a different record and analysis of your personal and professional finances in accounting. Blurring lines between business and leisure is not a good idea. One of the major reasons for this is tax. By doing this you will get a clear idea about your business cash flow. 

 

  1. Ledger

Ledger is a book or collection of accounts in which all accounting transactions like cash, account receivable, investments, inventory, accrued expenses, customer deposits and accounts payable are recorded. Ledger is also known as the second book of entry. 

 

  1. Trial Balance

Trial balance is the list of all the general ledger. It helps the accountant to balance debit and credit of income, assets, expenses and liabilities are correctly recorded. There are two types of trial balance :

  • Unadjusted trial balance
  • Adjusted trial balance

 

Unadjusted Trial Balance : The balance between credit and debit columns should be equal. If not, the trial balance contains errors. It should be done in the initial point.

Adjusted Trial Balance : The accountant must prepare the adjusting entries to update in the financial statement, then adjusted trial balance is made. There must be a balance between debits and credits.

 

  1. Adjusting Entries

Adjusting entries are made at the end of the accounting period. It records any unrecognized income or expenses for the period. It helps to record revenue that is earned and not earned, revenues from prepayments and piled up expenses.

 

  1. Financial Statements

Financial statements are written records of business activities and the financial performance of the company. Financial statements include balance sheet, income statement and cash flow statement. 

 

  1. Closing Entries

Closing entries are made at the end of the accounting period. It is also called permanent accounts. Transfer temporary entries to permanent entries. The last step is to create a post-closing trial balance. This contains only real accounts.

 

How to Set Up a Small Business Accounting System?

  1. Business Bank Account

When setting up a business, starting a separate bank account is the primary step. It will help you to separate your personal and professional finances. Also helps to keep track of cash flow and incoming and outgoing transactions.

 

  1. Accounting Method

It is essential to choose an accounting method when you are building a small business. There are mainly three types of accounting methods:

  • Cash Basis : Basic method to record your income and expenses when cash transactions are done. 
  • Accrual Basis : It’s easier to use. It keeps track of income and expenses irrespective of whether you received money.
  • Hybrid Method : It’s the combination of cash and accrual method of accounting.

 

  1. Recording Transactions

Recording transactions is one of the major parts in a business. It’s essential to track your transactions. You can hire accountants to make records on transactions and can also use softwares like QuickBooks to record your business transactions.

 

  1. Chart of Accounts

You need to create an Accounting Report after completing recording of all the financial transactions. Also record the progress made. These charts need to be updated after all transactions.

 

  1. Payment Plans

Based on the nature of your business you need to decide what will be your payment plans. You have the both option to use credit or cash method for payment.

 

Hire Accountants

If you are running a business it’s best to get professional help. So hiring an accountant will be the best option. 

Responsibilities of An Accountant in a Small Business 

  • During the evolution of a business, an accountant can help you to prepare a business plan.
  • Gives advice on business’s structure.
  • Helps to acquire proper licences such as business licences, sales tax permits and employment accounts.
  • Setup accounting software and create accounting records.
  • Deals with sales tax issues.
  • Helps to meet requirements of licensing agencies.
  • Maintain inventory records.

And much more.

There are so many institutes that provide short term courses that help to make professional accountants. Finprov Learning is one of the best institutes to provide Accounting and Financing courses.

As a small business owner keeping record of all the financial transactions up to date is necessary. So that you can run your business effectively and make a successful business.

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