If you are running a business, then you need an accountant. No matter how big or small the business is, you either need to hire a professional accountant to keep tabs on the accounts of your business, or you need to become an accountant yourself and do all the chores. Small business accounting plays a crucial role in defining the success of a business enterprise and determines the flow of business. The Financial matters related to small businesses are a little different from that of the large business firms. So, if you wish to administer your business in a proper way, understating of these accounting matters are mandatory. Optimum utilization of funds, correct business activities, right credit allocation and timely evaluation of competitors, along with effective decision making, are all necessary for small business accounting professionals.
Aspects of Small business Accounting:
There are primarily three main financial measures that are involved in the management of accounting details of a small business. This includes cash flow statement, profit and loss account and the balance sheet.
Balance sheet of the business:
The balance sheet presents the worth of the business and lists the liabilities and assets of the small business throughout the year. The profit earned or the loss incurred in the business is all calculated with the help of profit and loss account. This statement shows the performance of the business and covers the half yearly, quarterly or the monthly report.
Cash Flow Statement for small business accounting:
The cash flow statement is prepared so as to know about the cash balances of the small business firms in the future. It predicts about the cash requirements of the small business in the future.
Direct Method: This method combines information from both the Income Statement and the Cash Flow worksheet we created using the Balance Sheet.
Indirect Method: Using the Indirect Method, cash flows from Operating Activities are recorded by adjusting net income for revenues, expenses, gains, and losses that appear on the income statement but do not have an effect on cash.
Methods of implementing Small business accounting
Usually, there are two methods that can be utilized for implementing Small business accounting.
- Cash based method:
The first method is the cash based method that involves identification of cash receipts as the expenses and income, bill payments are seen as expenses. This method is used by most small business owners as it is simple to understand and can be easily implemented.
- Accrual Method:
In this method, revenue that is entered in the account books does not rely on the real cash collection. If a sale is made, the product is recorded in the books as “accounts receivable”. It doesn’t matter if the amount was paid by the customer or not. Further, when the amount is received from the customer, “accounts receivable” turns into cash, and registered into the accounting books. Similarly, if there is any expenditure incurring in a small business, it is written to be an expense in the book of accounts, even the bill is paid after a long span of time. Usually, small business that deals in manufacturing businesses, employ this accrual method to maintain their accounting books.
There are also several accounting software that are especially designed for small businesses and their requirements. Generating reports, storing data and performing calculations, and managing other such accounting transactions can easily be sorted out with the help of such software. These programs make the work of accountants in these small firms not only easily manageable but also very cost-effective.
Small business owners may also seek assistance from accounting outsourcing firms, for the proper management of their accounts and to hire proficient accounting services at affordable rates. So, select the small business accounting firm that suits your budget as well as requirements, and decrease the burden of your accounting tasks as early as possible.
It makes sense to hire a professional accountant for auditing, or to handle day-to-day accounts of your business, especially if you have to multitask to run your business efficiently. Remember, accounting is a vital process in any business, and keeping it in proper order should be the priority of any business owner. Initially you may not feel the pinch of doing without a professional accountant does, but when the taxpaying season comes around, you might find out that you do not have the accounts tallied properly.