Bookkeeping is a vital part of any businesses. Many small businesses choose to do the bookkeeping themselves, especially in the early days to save money. However, some of these businesses make errors at the beginning that can affect their bookkeeping for years to come. This is why it is important that you understand certain things about bookkeeping before you start out. Here are some things to be aware of.
1. Decide Between The Cash Method and The Accrual Method
When running a business, there are a couple ways that you can count your money. There are two main methods, called the cash method and the accrual method. With the cash method, you count your income when you get paid and not when the services were rendered. For example, if you own a doctor's office and you performed an exam on December 28th, but the client didn't pay their bill until January 10th, then the service would be counted in the January income statement and not December's statement.
Conversely, the accrual method is different in that you count the income when the service was rendered, not when you were paid. For example, using the instance of a doctor, you would count the exam on the books for December, even if you didn't get the money until January.
The reason it is so important to decide what kind of method you are going to use is that you could essentially count things twice and it could mess up your books. If you put in your accounts receivable that you expect a payment, so it goes on that current month (based on the accrual method), but then you record the payment the following month as well (based on the cash method), you will have an inflated income statement.
2. Use An Electronic System
Recording is everything in accounting. If you don't have a good way to record and keep track of every transaction you will be in a world of trouble. It may not seem like a problem in the early days while you are building your business, but come tax season, or if you are audited, you could be in big trouble.
This is why it is better to structure your company as if it were a large company from the get go. Use a program that can sync with your bank accounts so that you can see everything that is going on. Then as the business grows it stays manageable for you.
These are just two things that you should do as you start your small business when it comes to accounting. As your business, eventually it may be best to rely on the services of a professional tax accountant.Share
3 August 2015
Over 10 years ago, I graduated college with a graduate degree in accounting. After my college graduation, I planned to become a public accountant. However, fate quickly changed my career path. Instead of pursuing a career in public accounting, I began teaching accounting at my alma mater. I immediately fell in love with instructing. And, I’ve never looked back. During my college years, I learned the characteristics of a qualified accountant. If you need to hire this type of professional, you should look for someone who is experienced and certified. On this blog, you will discover the types of certifications accountants can obtain.