Accounting is about monitoring money coming in and going out, managing it, and registering it. For small businesses, it delivers key financial details to tax administrations and investors. This makes it manageable to make ideal business decisions. The right accounting system keeps your business working well.
With the use of accounting software, small business proprietors can handle their finances. Accountants now also need to use this software to sustain businesses with their financial requirements. Accounting helps you plan for the future, not only track the past.
According to Business Dasher, 64% of business landlords manage their bookkeeping. 30% employ an accountant. The IRS inspects about 642,603 businesses each year.
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Why Is Accounting Important?
Accounting is like a map that directs you through your business’s economic journey. It shows where your money comes from and goes, like paying bills, workers, or purchasing supplies. It indicates how much money you have left, including your earnings and savings. This precise understanding of your finances permits you to make wiser decisions for your business.
To learn accounting, it’s vital to know a few essential terms. Income (revenue) refers to the money your business makes. Expenses are the fees for operating your business, like rent or materials. Profit is what’s left after deducting expenditures from income, it’s your earnings. Assets are what you have; liabilities are what you debt to.
What Is Small Business Accounting?
Accounting for small businesses is all about maintaining track of your money. It means registering what you make, what you spend, and how much money your business has at any time. Good accounting helps you organize your business better and stay updated on taxes.
According to Forbes, In the U.S., businesses must pay federal taxes, and some states may add their taxes. Most small businesses use flow-through taxation, where owners, not the business, pay taxes on income. There are four major tax kinds: C-Corp, sole proprietorship, S-Corp, and partnership. It’s vital to confer with a tax professional before picking, as tax structure impacts freelancing taxes. S-Corp can be the right option to prevent entrepreneurship tax. C-Corp businesses pay taxes first, then landlords pay taxes on dividends (double taxation). State taxes rely on your area, and business proprietors must make quarterly tax payments to the IRS and state. Picking the proper tax structure can lessen your tax burden, and outsourcing tasks can assist in simplifying things.
How to do Bookkeeping for Small Business
Step 1: Manage Financial Trades
Begin by managing financial documents such as bank statements, invoices, and receipts. Only include transactions related to your business. For example, Keep personal loans and expenses separate. These documents, called source documents, are the foundation for recording business transactions.
Step 2: Record Journal Entries
Use a journal to record all business transactions in the order they happen. Each entry credits one account (money in) and debits another (money out). Frequent transactions, like sales and purchases, can go in special journals for simplicity. Less common transactions can go in a general journal.
Step 3: Update the Ledger
The ledger sets all trades by account, like cash, expenses, or sales. It shows how each account’s balance changes over time, giving you a precise view of your finances.
Step 4: Make a Trial Balance
A trial balance reviews that all your debits and credits fit. If they don’t, there may be errors to fix before proceeding.
Step 5: Adjust Accounts
At the end of a reporting period, you’ll need to make adjusting entries. For instance, you might account for income you’ve earned but not yet recorded or expenses like equipment depreciation.
Step 6: Draft Financial Statements
Make financial statements from your logs, such as the Balance Sheet, Cash Flow, and Income Statement. These give you a precise view of your business’s performance.
Step 7: Close the Books
At the end of an accounting period, close temporary accounts like income and expenses. The remaining accounts, like cash, carry over to the next period.
Tips to Set Up a Small Business Accounting System
Open an Independent Business Bank Account
Owning a reliable business account keeps your private and business finances detached. This makes it manageable to handle your money and track expenditures.
Pick an Accounting Method
Decide how to record your business’s income and expenses by choosing between two methods. The cash-based method records transactions when you exchange money, simplifying bookkeeping. The accrual method records transactions when they happen, even without money exchanged. This method is simpler for small businesses.
Record Transactions
You can employ an accountant, use accounting software, or register trades by writing. Use a chart of accounts to manage trades into classes.
Set Payment Terms and Invoicing
If you let clients pay afterward, fix precise payment terms and make a system for transmitting invoices. This enables you to get paid on time and keeps your cash flow stable.
The Need For An Accountant
Any business needs an accountant for
- Writing a business plan.
- Choosing the right business structure.
- Handling taxes and compliance.
- Setting up your accounting system.
- Managing payroll and inventory.
If you can’t employ an accountant, SaaS accounting software is a superb choice. It manages invoicing, expense tracking, and reports, giving you a precise picture of your finances for smoother operations and wiser decisions.
Accounting Tips for Beginners
- Stay organized by keeping all receipts and invoices.
- Update records, don’t wait until the last minute.
- If it gets too difficult, employ a bookkeeper or an accountant.
- Look at your statements monthly to see how your business is performing.
Why Financial Tracking Matters
Without proper financial records, small businesses face risks like:
- Overspending: Spending too much on things such as stock or wages can yield cash flow issues.
- Tax Problems: Inadequate records may result in underpaying taxes and encountering fines.
- Bad Decisions: Without clear financial information, making smart business choices becomes harder.
- Losing Loans: Lenders may reject you if your finances aren’t organized.
- Personal Risks: If your business struggles, creditors may go after your investments.
Conclusion
Handling your finances doesn’t have to be unendurable. Expertise Accelerated offers skilled accounting services to address your bookkeeping, taxes, and more.
By outsourcing your economic duties, you conserve time, prevent errors, and concentrate on operating your business. Reach us today to learn how we can help you!
