If you want to be able to help your small business grow, you have to know the best financial course of action. You have to be familiar with the basics of accounting for small businesses. Take a look at a few basics of accounting for small businesses, so you can better understand the steps you need to take to help your company flourish.
The Role of Bookkeeping
Bookkeeping and accounting serve the same general purpose, but they are different. Accounting is the process of interpreting financial data in order to give advice about the company’s current and future business. Bookkeeping, on the other hand, predominantly involves:
- Accurately recording all financial transactions of the business, such as receipts, payments, earnings, purchases and sales
- Extracting financial information from said transactions that can be used for taxes and financial reporting
- Analyzing financial information to decide where money can be spent or costs can be cut
Bookkeeping is often thought of as the first step in financial planning and organization for your small business.
The Role of Maintaining Accurate Records
When you think of accounting for your small business, it is imperative that you understand the importance of maintaining accurate records. You have to enter your expenses and revenues into your financial records. Faithfully keeping track of receipts, payments and expenses will help ensure that you are prepared should your business be audited. These types of records can also help you create a plan for your business.
Many small businesses use their accurate financial records to create income and expenditure summaries. These summaries help to give you, your employees and your investors a highlight of the financial state of your business. With these summaries, you will be able to chart the progress of your business and better understand what financial success looks like.
The Role of the General Ledger
When it comes to your financial records, the general ledger is the epicenter. This document records revenues, expenses and every other financial transaction of your business. The general ledger is a permanent record of your business’s financial progress. It is used to create other financial documents, such as balance sheets, financial reports and profit and loss statements.
Because so much information is derived from the general ledger, you want to make sure that everything in it is completely accurate. Some businesses choose to use subledgers, which house specific information about accounts payable, prepaid expenses or equipment purchases. These subledgers are used to give more detail than the general ledger. They can also be used to cross-reference and check for accuracy. The general ledger is a permanent accounting record.
The Role of a Financial Report
All of this record keeping is working towards the same end goal. They’re all used to create the financial report. A financial report is an in-depth analysis of the information from other records, bookkeeping and ledger entries. All of the complex financial data is reported in a way that shows you where your business is making money, where it is losing money, where cash flow has to be improved and the state of your different capital investments. This report helps you make financial decisions regarding your business.
A financial report doesn’t have to be a single document. It all depends on the needs of your particular business. Some businesses choose to have a financial report that is made up of smaller documents. No matter how you format your financial report, chances are your report will include a variety of statements, such as:
- Profit and loss
- Cash flow
- Balance sheets
You will then be able to use the information provided to make sound decisions for your business.
All Part of Accounting
Accounting is an important part of your small business. It is the detailed record keeping that allows you to make important financial decisions that will shape the future of your company. Bookkeeping, maintaining records, the general ledger and financial reports all play an important role in the accounting of your small business.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.