What exactly is small business accounting? Small business accounting is the procedure of recording, defining, measuring and interpret financial data used by a small company or organization. Maintaining track of your daily financial transactions, expenses and revenues helps you monitor your profit potential. It can also allow you to make changes when needed to improve your overall profitability.
The first step to small business accounting is to develop a comprehensive expense system. This means that your accounting system will not just be limited to journal entries. Entries in your journals and other written records should be reconciled through your accountant. Once this is done, you can proceed to recording your daily expenses. These include office supplies, lunch, gas for your car, laundry, office taxes, insurance premiums, personal telephone expenses, purchases made for office equipment, etc. You should keep track of the total cost for each day and record the amount of expenses you incurred.
Another factor in accounting is cash flow. Cash flow is the total amount of money that a business earns or loses over a given period of time. The way you record your cash flows can affect your small business accounts receivable and cash balance. Recording the date when you received your invoice and when you paid your invoice is one of the most important ways to improve cash flow.
Most small business accounts maintain separate checking and savings accounts. A common practice is to maintain the cash balance of the checking account separate from the savings account. This helps in two ways. First, it prevents overdrafts from occurring, and second, it allows you to withdraw cash quickly without waiting on a check to be written.
Another technique used to improve cash flow is to maintain separate books of accounts for your small business accounts. Separate books are easier to maintain and update when necessary. One advantage to keeping the books separated is that you can make the distinction between checks and cash flows. For instance, a check book would show a transaction that was a check bounce off the system, while an entry for a cash flow would indicate the exact dates when the check was cashed.
Small business expense accounting is a key element to the financial health of a small business. If you do not have good accounting practices in place, your business expenses will reflect in your company’s profit and loss statement. To ensure accuracy and prevent the costly mistakes associated with error-filled expense reports, it is important to maintain accurate expense reports. You will incur expenses such as supplies, labor, vehicle expenses, office rent/ rents, advertising costs, utilities, etc. The expense of these items will vary depending on the nature of the product or service you provide, the number of outlets, and many other factors.
Proper Small Business Accounting includes two vital parts: accounting for the income from sales of products or services sold to customers, and billing expenses for goods or services received. The accounting for income from sales includes the creation of the final invoices, keeping good records of sales and purchases, and preparing the income statement. A balance sheet shows the difference between assets and liabilities. A profit and loss statement lists the profits earned and the expenses incurred by the company. Finally, the payment terms account for outstanding invoices, debt owed, and outstanding loans or other lines of credit.
The cash flow statement, balance sheet, and profit and loss statement are used to prepare and review financial statements for a small business. These reports are used to determine if the company is making a profit or losing money, and to set policy for future operating expenses. For example, if the company has excess funds at the end of a period, it will need to estimate future revenue based on its previous sales estimates. For this reason, small business accounting requires a detailed knowledge of many issues related to cash flow and budgeting that cannot be obtained from the daily operations of the business.