As counterintuitive as it may appear, it needs money to make money. Starting and maintaining a business requires a steady flow of money into and out of the business. You shouldn’t be scared to spend money and invest in the future, but you also shouldn’t spend more than you have.
Keeping track of the cash flow is one of the most challenging aspects of managing it. Keeping track of all your transactions as you spend and make money may appear simple, but it is a crucial administrative duty that is extremely easy to forget.
Additionally, many do not understand the significance of small company bookkeeping for your firm. As long as you know you have sufficient funds, could it really be that crucial to maintain accurate records?
Unbeknownst to many individuals, maintaining a good bookkeeping record is not only useful for knowing how well your firm is doing, but also for proving your success to others. Accurate bookkeeping will assist you with your tax return, make you more attractive to lenders, and increase your prospects of receiving investment.
What is the difference between accounting and bookkeeping?
Bookkeeping and accounting are interrelated and frequently confused, but they pertain to separate aspects of the accounting process. While bookkeepers maintain a comprehensive and detailed record of every financial transaction, accountants focus on the big picture. Accounting is reporting or summarising financial activity over time, then drawing inferences or formulating plans based on these financial statements.
Accounting is necessary for examining your records through time and planning the future of your firm based on a realistic evaluation of the past. However, none of this is feasible without the meticulous job of bookkeeping to record transactions and maintain an accurate general ledger.
Your tax returns are typically prepared and filed by a certified public accountant (CPA). However, the job a bookkeeper performs to manage your business’s records is vital to the accountant’s ability to understand your company’s financials. Thus, they can ensure the accuracy of your tax return.
What Are the Various Types of Accounting/Bookkeeping?
There are two primary forms of bookkeeping, with the primary distinction being to the degree of complexity. Numerous small firms begin with single-entry accounting. This entails maintaining a single, straightforward balance sheet in which each transaction is recorded once as either an income or a cost.
A single-entry system is sufficient for businesses with a limited volume of transactions, but a double-entry system is required for businesses with a high volume of financial transactions.
With a double-entry accounting system, each transaction requires two separate entries. It is all about balancing assets and obligations and monitoring the flow of money. If you get money and record it in the credit column, it must be accounted for in the ledger’s debit column for money that is paid out.
Double-entry bookkeeping maintains a balanced chart of accounts and simplifies the preparation of financial statements and income and expenditure reports for long-term planning, taxes, and other purposes.
Accounting Account types for Small Businesses
As business owners, it is not sufficient to relegate the financial parts of your organisation to a bookkeeper or bookkeeping system; you must understand your business’ finances in order to make more informed decisions and plan for the future.
Through this account, all of your business transactions will be processed. Typically, the Cash account is divided into two journals to document its activity: Cash Receipts and Cash Payments.
Receivables: If your company offers items or services but collects payment later, the money owed to you by clients is referred to as “receivables.” You must continually monitor and update your Accounts Receivable in order to deliver timely invoices to your clients.
Unsold inventory items must be accounted for and monitored. Periodically, businesses should do physical counts of their inventories.
Accounts Payable: Your Accounts Payable is where you keep track of who you’ve paid and how much, so you don’t mistakenly overpay someone.
There is the possibility of receiving discounts if payments are made early.
If you have borrowed money for new equipment or improvements, this account will track the payments and due dates.
This account keeps track of all of your payroll expenses. To comply with tax and government reporting requirements, you must maintain an accurate and current account. Any inaccuracies in your reporting will have severe consequences. You could be audited by the IRS.
What are fundamental accounting skills?
Check out these recommendations if you’re just starting out as an entrepreneur or have battled with effective bookkeeping and are looking for solutions:
1) Be familiar with debits and credits
Maintaining a full and balanced balance sheet necessitates keeping track of all debits and credits. This involves keeping track of accounts payable and accounts receivable and recording financial transactions as money actually comes into or out of your organisation.
What money do you owe that you have not yet paid, and what money do you still owe? Your accounts should represent all anticipated future payments so that when money comes in on one side or invoices come in on the other, you know exactly where the money is going or how the bill is being paid.
2) Stay Organised
You must know where and how everything is stored. Maintain a consistent pattern and then double-check to ensure nothing slips between the gaps. If you take the time to balance the accounts, the double-entry approach will allow you to detect errors if the accounts do not match up in the future. Establish a clear and accurate method of operation and adhere to it.
3) Find an Effective Program
Finding the right accounting software for your business may do wonders for your productivity and make your financial transaction records more accurate than before. Take the time to customise a programme to your business’s unique work procedures so that you can maintain your books with minimal effort.
4) Communicate Effectively
Maintaining a healthy cash flow and keeping accurate books requires effective communication with your personnel. No matter how thorough and responsible you are with reporting expenses and revenue and recording them, your effort could be undone if other employees don’t understand how you perform bookkeeping or why it’s vital.
If numerous people will be using your ledger, you should establish extremely explicit instructions for how to enter transactions so that everyone involved in bookkeeping is on the same page. If you don’t educate your staff about everything they need to know and how to complete the work, it will be your fault if they make a mistake, and you could wind up with duplicate entries, missing data, and other problems.
5) Employ a Qualified Professional
When unsure, consult an expert. As your firm expands, it will become increasingly difficult to maintain a complete and accurate financial record. Double-entry bookkeeping is challenging, especially if you are busy running a business. However, a developing organisation with a high volume of financial transactions is required to maintain accurate records. Finding a professional to do it relieves you of the effort, but the advantages don’t end there.
A competent bookkeeper on your staff could offer the following:
- Reliable, accurate financial records and data
- Timely and regular financial statements
- A comprehensive analysis of the financial health of your organisation.
- Evaluation and record-keeping without prejudice
- Peace of mind and additional time to concentrate on growth and revenue.
6) Concentrate on Specifics
Your record-keeping will benefit greatly from a keen attention to detail. As the business owner, you establish the company’s norms. If you overlook meticulous and accurate bookkeeping, your coworkers will conclude that it is unimportant.
Inattention to detail also leads to blunders and missed payments in the future. You could lose money or fail to pay bills when required, and your firm will suffer further if you need to present a profit and loss statement and a balanced general ledger for taxes or a loan.
It depends on what your business needs and where you wish to take it. Plan for the future and provide your firm with everything it needs to prosper immediately. However, thorough financial planning and accurate record-keeping are essential for every business owner who desires long-term success and expansion.
