Small business accounting refers to the process by which accountants translate business records into user-friendly data that shows how well or poorly your business is performing. Simply put, it tracks, organizes, and analyzes all financial transactions recorded by your company. While it can seem like a tedious task, it is an essential part of the business that will help you avoid numerous paperwork and cash flow problems.
Understanding Business Accounting
As previously stated, business accounting tracks your cash flow, with some of the most crucial accounts for this process being liabilities, sales, purchases, and payments. With this in mind, businesses benefit from accurate bookkeeping, timely tax reports, and precise financial reports.
Essential Steps for Small Business Accounting
Open a Business Bank Account
This first step will prove helpful in allowing you to separate your finances from that of your business. Some accounts that will be worth your while including a savings account and a business checking account to help you plan your taxes.
Record Your Income and Expenses
Next, track all your transactions. This means monitoring expenses related to the businesses, such as purchase orders to help you prepare your financial statements.
Choose Your Preferred Accounting Method
Accounting relies on two methods of recording transactions, with the first being cash-basis accounting. Here, you will be required to record your income and expenses after paying or receiving your cash. The second is the accrual method that will require you to use the double-entry method of recording, meaning you record your income and expenses only when incurred.
Transactions To Trial Balance
If you use the double-entry accounting system, your journal entries should be posted to the general ledger, after which the trial balance is prepared.
Create an Adjusted Trial Balance
If you settle for the accrual method of accounting, make it a point to adjust your journal entries to allow you to get an adjusted trial balance.
Generate Your Financial Statements
Next, you will be required to generate your financial statements. These include the statement of cash flow, the income statement, the balance sheet, and the statement of retained earnings.
Reconcile and Close Your Books
The last process will be making your post-closing entries. This help helps you restart your accounting cycle to help you record future transactions with ease.
Tips To Keep Your Books in Check
Keeping your accounting books in check will only require you to adhere to three simple guidelines. These include safely keeping all sales and purchase receipts, posting these to your ledger, and creating the necessary reports. With these, you are assured of accuracy in your business accounting practices.
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