Starting a new venture? Not sure how to handle or record every transaction? Well, accounting and finance can be daunting, especially if you are not a math person. But, to run a small business, you need to be at least a little skilled in accounting and bookkeeping. The thought might seem overwhelming, especially if you are not from a commerce or finance background, but don’t worry, here are some tips to coach you about recording and managing numbers.
1. Understand Business Accounts
The first and foremost thing you need to wrap your head around is that you and your business are two separate identities and in the world of accounting and finance, an account doesn’t refer to your personal bank account. Instead, it is a record of all your financial transactions, like sales, or payroll.
There are five basic types of accounts you need to consider: –
Assets: Are the cash and resources owned by the business
Liabilities: Are the obligations and debts owed by the business
Revenues or income: Is the money earned by the business, through sales
Expenses or expenditures: Is the cash that flows out from the business to pay for some service or utility
Equity: Is the value remaining after liabilities are subtracted from assets. This represents your held interest in the business (e.g., stock, retained earnings)
2. Set Up your Business Accounts Separate from Personal Accounts
Knowing the accounts, you need to keep a track of is one thing, setting them up together is another. Traditionally, charts of accounts were recorded in a physical book, known as the general ledger. But now, most businesses use computer-based software to record transactions. You need to set up your business accounts separate from personal accounts to avoid the trouble of keeping track of business expenses. Having a separate bank account for business makes it easy for you and your accountant to see how money is being spent.
3. Decide on a Bookkeeping Method
If you plan to do your own small business accounting instead of outsourcing to finance and accounting services, you need to make this crucial choice before starting. You have to decide whether you are going to use single-entry bookkeeping or double-entry? Let’s understand what these two are: –
With single-entry bookkeeping, you need to enter each transaction only once. For instance, if a customer pays you a sum, you enter that sum in your asset column only. Makes sense right? This method can work only if your business is simple, as in very simple.
On the other hand, most finance and accounting services use double-entry bookkeeping because, in a double-entry system, you need to record two entries for each transaction – a debit and a credit. Debit and credits are recorded as journal entries in the accounting ledger. Even though double-entry is a bit more challenging, it is accurate and balanced, that means you’ll be tipped off immediately if something doesn’t add up.
If you don’t want to go to through all this trouble, simply hire online accounting services for small business.
4. Record Every Financial Transaction
Now that you have created your set of financial accounts and picked out the correct bookkeeping system, it’s time to record what is actually happening with your money. It is crucial that each transaction is recorded with the utmost precision and in the right account. Otherwise, your books will be a mess and provide meaningless information.
5. Balance the Books
The last step in bookkeeping is to balance and close your books. When you tally up all your debits and credits at the end of the quarter, the total of the debit should match the total of the credit column. If it doesn’t, something is wrong, or you omitted an entry.Finding the discrepancy in the books can be extremely time consuming and is best handled by a professional or if you have a good understanding of the concept of accounting and finance. If neither of these apply, hire online accounting services for small business. These services help you perfectly record, balance, and close your books of accounts.
You Don’t Have to Do It Alone
Accounting and finance can be a challenging task. Consider seeking professional help by hiring finance and accounting services or online accounting services for small business. For a business owner who lacks accounting and bookkeeping skills or is not comfortable crunching numbers, outsourcing accounting can be an attractive choice. All you have to understand is: you are a business owner, that doesn’t mean you have to perform every single task on your own. That is why people delegate. Delegate your work so you can focus more on core business activities.
