Basics For Small Business Accounting
The key to the survival of your business is to understand and maintain its financial health. For entrepreneurs, carrying out basic accounting can be tedious especially for those without the required training. However, the money, time and other resources invest in the business can only be nurtured to grow with proper and regular monitoring of the financial standing of the enterprise –even the fortune 500 companies.
Keeping up-to-date financial records has many benefits but you cannot do that if you are not familiar with the fundamental terms in accounting and how important they are. After registering your business, you must be able to keep your personal asset and liability from that of your business. One way to do this is through proper bookkeeping and thorough accounting.
Though some use it interchangeably, bookkeeping is quite different from accounting. Bookkeeping is the daily recording of financial transaction while accounting is the overall process of recording, interpreting, analyzing, summarizing and reporting financial data. Therefore, bookkeeping is only one of the processes of accounting.
In accounting, you usually hear the words assets, liabilities, incomes and expenses. The business assets are what it possesses, be it furniture or cash, inventory and even money owed to the company. Liabilities, on the other hand, are what the enterprise owe (not own), these include loans, accrued tax and rent and wages payable. Just like income, assets must be increased regularly to keep the business growing while liabilities, just like expenses must be kept to the barest minimum.
Account receivables are the amount due to be collected from customers for sales made. Account receivables report must be prepared to show those that are overdue for payment, which helps to keep track of your cash flow and budget system. In contrast, account payables are the amount the business owes its suppliers. Account payable report serves as a reminder for due payment. Timely payment helps to build good rapport between you and your vendors or suppliers.
Regular payment of taxes not only keeps your business breathing but also reduce unnecessary interference from the government. Small business owners must prepare sales tax report. The amount to be paid as tax is calculated by adding the total annual income of the business, which can be done with MyBooks cloud accounting software, and subtracting the expenses from it. You must also keep records of the sales tax returns filled annually.
The purchases account is essential for calculating the cost of goods sold by the business but it is also necessary to prepare the sales account because that is how you know what profit from the goods sold.
As your business continues to grow, you will need helping hands –employees. There is, therefore, a need to prepare payroll account to reflect the amount you pay this employees and how often.
Managing your business account, preparing the necessary report and interpreting it are continuous routines that need to be done. This does not necessarily have to be a boring task because MyBooks cloud accounting software is here to simplify the task for you.