Small business accounting services small and tax for small business

Small business accounting

So you're interested in opening up a new business but don't have any accounting background whatsoever. There's no need to worry about that. Understanding the basics of accounting is not that difficult.

If experts are to be believed, accounting is the process that involves the recording, categorizing, analyzing and reporting of financial information. Fact remains that the accounting procedures vary depending on how large your business is or how it is structured; but one thing is the same -- all companies require some way to keep track of their funds.

That’s why, to avoid hassles, some firms just hire small business accounting experts to build and monitor their financial books. On the other hand, there are some that also use software that's widely available in the market, like CheckMark MultiLedger, MYOB Accounting and QuickBooks to keep their accounting records in check.

How does basic accounting work

Theoretically speaking, accounting is all about creating balance between your debits and credits. Using a process called double-entry accounting, accountants generally make use of a ledger to record all the money, no matter how small, that goes in and out of your company. Next in line, these numbers are written on a balance sheet, which can pretty much sum up your company's financial state of mind.

This general equation is normally present in all accounting records:

liabilities + capital (equity) = assets

What does a basic accounting cycle contain

Fact that small business accounting is a periodic activity, meaning, it happens either monthly, quarterly, biannually or yearly, depending on your needs, there has to be a set process to keep things running efficiently.

1) Recording – It involves, entering data about daily transaction in sales, cash received and cash disbursed ledgers.

2) Post credit and debts in the general ledger – It is advisable to keep your general ledger up to date by inputting all accounts payable, accounts receivable and equity and other expenses and accounts

3) Adjusting the general ledger – Always remember the point that not all ledger entries are carved in stone. As a matter of fact there are items like accrued interest, taxes and bad debts that do not get recorded in daily journals. That’s why, adjusting the entries will go a long way in creating balance all expenses with revenues for every accounting period.

4) Close the books – It is worth pointing that after all costs and sales figures are accounted for, net gains should be immediately posted on your equity account. In theory, before a new accounting cycle starts, costs and revenue should reach a zero balance.

5) Prepare and release financial statements – According to experts, firms come up with financial reports at the end of every accounting period, which consists of statements of capital, income statements, cash-flow data, balance sheets and others, to sum up all the activity for the given period.

It is worth mentioning in this regard that the key output of an accounting procedure is the financial statement. As a matter of fact small businesses often use this to gauge how well their company is doing at present and how much they can afford to spare for expansions and improvements in the future. In addition, financial accounting statements also help owners realize where to place lids on costs and when to start spending, based on past experiences. On the other hand, they also make it easier for businesses to qualify for loans, if ever they need one, and to report their financial standing to the IRS.

In theory, all businesses use accounting in their financial system. As a matter of fact using a simple check and balance can do wonders on any business, be it sole proprietorship or a corporation. There are number of accounting professionals that you can hire to do the work for you especially when tax season comes.

According to experts, doing your own small business accounting can be great. This is because of the fact that apart from keeping track of your expenses and savings, you have control over everything in your business. One can imagine the time and money you can save by keeping your files and accounts in order.

On the other hand, if you aren’t sure about hiring an accountant or if you think it’s unnecessary since you still have a small operation going, you can use simple accounting for your business. What accounting does is give you important information about where the finances are going within the business. In addition, accounting helps you make better decisions in handling your operations.

But all is not well, the downside is accounting has its own alien language, which is why you need to learn a few of them to be able to understand the accounting process. It is worth mentioning in this regard that modern accounting uses the double-entry book keeping system. This system emphasizes that for every amount or goods received (debit), something of equal value is also parted with (credit). Using this process, all debits and credits should be balanced at the end. This makes it simple to check for errors in the accounting books.

In theory, to start a simple accounting of your business, you have to keep a book. This is termed as bookkeeping in accounting terms. It implies that you have to make a record of all your business transactions whether buying something for the shop, paying bills or selling appliances from the your store. Some of the businesses use a ledger or a record book for this purpose.

Now that you’ve got your “book”, its time to learn about the three basic elements for accounting, which are mentioned below:

1. Assets – In theory, these are things of value owned by your business. Examples include cash (from sales), accounts receivables, inventory, land, building, equipment and uncollectible accounts.

2. Liabilities – According to experts, these are debts of your business to other people, businesses or financial institutions like banks or lending companies. In this case the system recognizes these accounts with words followed by “payable” like accounts payable and loans payable. This also consists of taxes and insurance payments.

3. Owner’s Equity – Owner’s equity is the amount the business owner is entitled to receive of whatever is left of the assets after the liabilities have been taken. It is sometimes termed as net assets.

All three elements form the accounting equation:

Assets = Liabilities + Owner’s equity

And since the mathematical equation must always be balanced, in the end of the books the amount of the assets should be equal to the owner’s equity. It is worth pointing that if you cannot balance it, you must have missed something or your business assets are being funneled to the wrong account.

If this accounting work sounds too hard for you, you can buy software’s that can do the record keeping of your business. As a matter of fact some offer the full accounting service in their programs, from trial balances to printing financial statements. Though, you still have to manually type in the accounts on your computer. On the other hand, if you do have a basic knowledge of accounting, your program can still give you the wrong information.