Small business accounting entails the process of recording, tracking, and analysing all financial transactions of a given business. Archimedia accounts help to translate numbers into understandable reports about the performance of your company. It is easy to think that accounting is the most daunting part of running a small business, but that is not true.
Here is how to do accounts for small businesses.
SMALL BUSINESS ACCOUNTING
Small business accounting is carried out to track the money that gets in and out of the business within a given period. These include liabilities, sales, purchases, payments, etc. Though business accounting is a vast topic, for small businesses, it is all about;
• Filing tax returns
• Creating financial reports
THE PROCESS OF DOING SMALL BUSINESS ACCOUNTING
1. Have a Separate Bank Account
It is important that when running a small business, you give it a bank account. This is to separate your finances from those of the business. You should have a business savings account, as well as a business checking account. By having the two accounts, you will not struggle to organise the revenues and have a good plan to take care of the taxes at the end of the year.
2. Track The Expenses
It is vital to have solid business bookkeeping and ensure that it is as accurate as possible. This is an important step that comes in handy when you want to track the growth of your business. It also lets you build financial statements, prepare tax returns, keep track of all expenses, etc. If you have the right details, making crucial business decisions becomes easier.
From the start of your business, make sure to come up with a system to organize receipts and other critical records about the business operation. Based on your location, there are free online resources that you can use to keep financial records of your business.
3. Select The Best Accounting Method
Before you establish a good bookkeeping system, it is crucial to come up with the best accounting method for your small business. At the moment, there are two best methods that you can use to record important transactions; accrual vs cash basis accounting. Cash-basis accounting involves recording expenses and income each time you make payments or receive cash.
Accurate accounting involves using the double-recording method to record transactions. This also implies that you will have to make two entries for each transaction. You must record both expenses and income at the time they take place, irrespective of the time when the cash was exchanged.
4. Transfer-Transactions to the Trial Balance
If you go for the double-entry accounting system, the transactions will always be recorded as journal entries. The journal is used to list the entries in chronological order to avoid confusion. They also include the exact amounts credited and debited as well as the dates on which the transactions were completed.
These balanced entries in the journals will then be transferred to the general ledger. The trial balance is then prepared based on the transactions recorded in the journals and the general ledger. The trial balance is used by small businesses to indicate that every detail was recorded accurately.
5. Craft an Adjusted Trial Balance
A small business using the accrual basis of accounting should consider adjusting the journal entries to help account for the period income and expenses. For instance, when you pay rent for one year, it is crucial to come up with a monthly adjusting entry to recognize each expense incurred by the business.
By doing this, the income and expenses will be accurately matched within the period represented in the business’s financial statement. Once the adjusting entries have been created the business should have an adjusting trial balance to ascertain that the credits and debits tally with the adjusting entries.
6. Come Up With a Payroll System
Most small businesses begin as one-person shows, but with time, they bring in more workers. When you bring in more individuals, you should decide whether they are employees or individual contractors. If they are employees, you will have to come with a payroll system.
There are many services that could help. These are free accounting software options that can come in handy when trying to come up with a good payroll feature. Suppose they are contractors, be sure to track down the amount you pay to each of them within various periods.
7. Investigate the Import Tax
Based on your business model, you might have a plan to purchase and import goods from foreign nations to sell in your store. If you engage in the importation of products, you will be subject to duties and taxes. To be on the safer side, you must take your time and learn how these things work.
Duties and taxes are the fees that your country imposes on imported items. Therefore, you should learn about the importation of goods into the UK and its proximity. If you know the rules, you will find it easier to expand the operation of your business.
8. Choose How You Will Get Paid
When your small business starts to make sales, you should have decided on the best payment method that you are comfortable with. For instance, if your business operates online, you can choose to accept payments via PayPal, Transferwise, Bank Transfer, MasterCard, etc.
When choosing the right payment method for your business, you should have the customers in mind. They should also be comfortable with the means of payment you choose. If possible, try to ask some of your customers about how they would like to make payments and put their suggestions into consideration.
There are many ways to do accounts for small businesses, but the tips shared above will help you in many ways. When starting, you are supposed to give your business a separate bank account to help you track down the profits as they come in. Note that you and your business are two separate entities, so you must never share the same bank accounts.