Accounting for Small Businesses: A Comprehensive Guide to Financial Management

Here are some basic steps to get you started keeping track of your small business’s financial information, generating financial statements, and filing taxes. This method records both invoices and bills even if they haven’t been paid yet. This is a highly recommended method because it tells the company’s financial status based on known incoming and outgoing funds. Because the funds are accounted for in the bookkeeping, you use the data to determine growth.

Manage profits and losses.

You can choose from many accounting software systems with varying effective interest method of amortization excel features and prices. The type of business or industry and number of employees are two major factors to consider when choosing the best accounting software system. Cash flow refers to the total amount of cash that comes in (revenue) and out (expenses) of a company.

How to Do Accounting for a Small Business: Your Quick-Start Guide

1. Taxes and government compliance to certain rules and regulations may be best managed by a certified accountant professional (CPA).
2. Once the entries are assigned to the correct accounts, you can post them to the general ledger to get a bird’s-eye view of your current cash status.
3. This is done to test if the debits match the credits after the adjusting entries are made.
4. These documents provide accurate wage reporting, along with Social Security and Medicare benefits.
5. Choose a methodology for recording business transactions that works well for your company’s needs.

But once your business is big enough that you can’t (or simply don’t want to) wrangle finances by yourself, it’s probably time to get a bookkeeper or CPA on your payroll. You can learn a lot about how to do accounting for small businesses just from browsing the internet. But nothing beats up-front, personalized advice from a certified professional—in this case, a bookkeeper, accountant, or CPA. Bookkeepers, accountants, and CPAs all bring something different to the table. With electronic banking making it much easier to manage your bank accounts, you may be tempted to skip this step. Reconciling your bank accounts each month is important and should be done regularly.

Some common steps to manage your business’ accounting include a few processes involving a company’s overall record-keeping methods, taxes, forecasting, budgeting, and more. Bookkeeping focuses on recording and organizing financial data, including tasks such as invoicing, billing, payroll and reconciling transactions. Accounting is the interpretation and presentation of that financial data, including aspects such as tax returns, auditing and analyzing performance. Accounting software, including cloud-based programs, is changing the way businesses complete accounting tasks. In some cases, small business owners may be able to do their own accounting, especially with the use of software.

Key Components of Bookkeeping

Though often confused for each other, there are key differences between bookkeeping and accounting. At its core, bookkeeping is about recording financial data, while accounting is about interpreting financial data. Investing in different areas of your business can be an important next step. Read this guide to discover financial reporting and the different accounting systems, accounting software, and whether you how difficult is passing acca an honest review can do your own small business accounting. Just as you may reconcile your personal checking account, you need to know that your cash business transaction entries are accurate and that you are working with the correct cash position.

Step 6: Prepare adjusting journal entries

For the most part, though, you’ll probably end up paying income taxes, sales taxes, and payroll expense definition and meaning taxes. With a little bit of preparation, even novices will be able to take on bookkeeping or accounting tasks for their business. Whether you choose the manual method or opt for accounting software, there are tons of accounting tools available for you to take advantage of. Companies hold a certain amount of inventory, or finished products/goods, that have not yet been sold.

The accounting method you choose has a huge impact on your business, so we highly recommend you talk to your small-business accountant, CPA, or bookkeeper about which method works best for you. With that caveat in mind, here’s a quick overview of the two types—and which type certain businesses are legally required to use. Sage Business Cloud Accounting starts at $10/ month, but for complete accounting functionality, you’ll want to choose the full-service plan at $25/month. Now that you know the five main account types, you should begin to familiarize yourself with some other accounting basics. If you’re using accrual, or double-entry accounting, you will need to understand the accounting equation and debits and credits, which are the backbone of any accounting system. A  chart of accounts lists all business transaction and is used to compile statements, review progress and locate transactions.

Note that you may need to make quarterly estimated tax payments if you expect to owe $1,000 or more when filing your annual tax return. Xero starts at $9/month for the Early plan, though most small businesses will find the Growing plan, at $30/month, more suitable. FreshBooks pricing starts at $15/month for the Lite version, which is perfect for freelancers and contractors, with the option to move up to the popular Plus plan at $25/month at any time.