An Introduction to Small Business Accounting
Small business accounting requires a business owner to have accurate bookkeeping to organize financial transactions, including expenses, sales, liabilities, and assets. It assists small business owners in managing and tracking their money effectively, completing payroll, and generating invoices. Below is a list of ways to set up an accounting cycle for your small business.
Record All Expenses and Income
Learning how to record and track your business transactions is crucial for a solid small business accounting system. The source documents help you prepare tax returns and financial statements, monitor deductible expenses, and track your business growth. It is essential to note that only expenses related directly to your small business are recorded. Such costs include canceled checks, invoices, and purchase orders.
Develop an Adjusted Trial Balance
Using the accrual accounting method, you should adjust your journal entries to account for periodic income and expenses. For instance, when you pay the rent for the whole year, monthly adjusted entries are crucial to identify the incurred costs. The approach ensures that the expenses and income match accurately during the period constituted in the financial statements. An adjusted trial balance confirms that the credits and debits match the revised entries, and it’s the most accurate approach to recording your small business accounting activity.
Choose the Accounting Method
Before establishing a reliable bookkeeping system for your small business, you must select an accounting method ideal for your business. The primary methods of recording your small business accounting transactions are accrual and cash basis of accounting. A cash basis accounting allows you to record expenses and income when you pay or receive cash. Accrual accounting, on the other hand, requires you to make two entries for each transaction. You record income and expenses routinely regardless of when the money is exchanged.
Create a Business Bank Account
Create a dedicated bank account to separate your personal and business finances. A savings and a business checking account help you plan for taxes and organize your revenue. Separating your funds is crucial as it makes it easier to track the financial progress of your small business and protects your assets if your company gets sued. When creating an account, you require your Employer Identification Number (EIN), Social Security Number (SSN), and state or federal business permits.
Keeping books for your small business isn’t difficult when you follow the steps listed. Efficient small business accounting helps you identify a pattern and make the required changes to improve your business operations. Contact an expert from Atlas Capital Solutions to secure financing for your startup.