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Small Business Accounting and Bookkeeping Basics You Can’t Ignore

Last updated: 19 Nov, 2021 By | 6 Minutes Read

 

Being a small business owner, it is always advisable to keep a hawk eye on every minute detail of accounts. So to do this one must be aware of the accounting basics, want to know what are those? Go through this blog illustrating the accounting basics.

Bookkeeping is the primary task in every business organization, regardless of its size. Many small business entrepreneurs forget that the token of being a successful entrepreneur is understanding the basic terms of bookkeeping.

No doubt, small business owners are masters at their work, but what about the investment and returns that work simultaneously to gain huge profits?

Do you know according to the Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years? And the most common reason is a lack of bookkeeping knowledge among the owners.

Without proper accounting system, it’s not possible to survive because a good financial plan is a road map that shows us exactly how the choices we make today. Well, I think if a small business has any miscalculation of their financial position, you can see the adverse effects of it in the business workflow.

Small business survival success rate is unexpectedly less than the failure rate, so the owners should have a note of do’s and don’t’s before starting a business.

Remember one thing “Creative bookkeeping is the magic wand of restructuring”. You can take your small business accounting to the next level with success if you have understood the goal of accounting. It is a language of any business and using a variety of basic accounting practices you can increase the transparency of volatility in earnings.

So learning the way to create and read balance sheets, cash flow charts and other financial records have become imperative for small businesses to survive in the competitive market.

Here are some of the accounting and bookkeeping basics that you need to understand:

Cash Account– Cash is the blood of any business and every business transaction passes through the cash account, this ledger shows how much cash a company holds. The owner should review the cash account thoroughly to understand the financial position of the business.

On the basis of cash account, you can have an idea before investing in any stock, securities or bonds.

Accounts Payable– The outstanding amount is like a termite in any business. It’s necessary to track the pending bills and have a clear idea of the payments that need to be done.

Quality bookkeeping assists you to make timely payment or early payment, which is a good sign for your business.

Accounts Receivable– Account receivable simply means the amount borrowed from you. Every business should keep a record of its debts and try to recover the amount as soon as possible.

Poor bills receivable can lead the business to increase liabilities that are bad debts, that means insolvency of the debtor.

Bank Reconciliation– The term reconciliation in accounting means verifying, so bank reconciliation is the verification of the statements that you have maintained and the bank statements.

This helps you to avoid any kind of fraudulent transaction and gives you the right picture of your income and expenses.

Inventory Account– Inventory is the stock of products that are stored before selling, this has a different entry in a separate column in the books, as it needs to be tracked properly because it’s the primary source of revenue generation in the business.

Payroll Expenses– Managing payroll expenses are one of the crucial tasks, as you have to look after the government tax policy and other responsibility. And to process every employee’s salary, leaves, etc. is something you cannot neglect at any cost.

Equity shares of the owner– Equity share are the investment made by the business owner in the assets of the firm. Usually what happens is “Small business is owned by a single person or a group of people, so there’s no share of stock exists”, according to Epstein.

Instead, these investments are shown in the capital account and if any amount is withdrawn for personal use, it is mentioned in the drawing accounts of the owner.

Sales Account– To have an idea of your Sales that keeps on fluctuating, it is necessary to maintain the entries in your book of accounts regarding your sales. This will help you to improve your sales and increase business productivity.

Loans Payable– If any small business owner has borrowed the amount for business from any financial institution or bank, so this account will help them to keep a track of the due amount.

Retained Earnings– “Beware of little expenses, a small leak will sink a great ship”, every small business should be cautious about the expenses, in order to avoid risk related to finances and the best way is to re-invest the revenue generated by the firm since the business was started.

Managing this cumulative amount is difficult, but the investor and lenders should keep a track of retained earnings for future crises.

When it comes to the success of your small business the secret is “Think Big, Stay Positive and work hard”.

Many small businesses have a myth that bookkeeping is their biggest rival, but understanding the basics and importance of accounting and bookkeeping, it can become your best friend. This friend will alert you and help you when you are about to lose the battle in the market.

Are you having problems managing the bookkeeping even after hiring a professional bookkeeper? You might need an entire team at an affordable cost. Get in touch with Cogneesol, a leading bookkeeping outsourcing company. To know more about how we can help you rectify bookkeeping issues, contact us at +1 646 688 2821 or write to info@cogneesol.com.

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