Importance of Accounting for Small Business
What is the importance of accounting for Small Businesses? Accounting is one of the most important functions of a successful business. It allows for accurate tracking of financial transactions, which in turn helps to ensure that the business is operating within its means and making enough money to survive.
In order to be successful, a business must clearly understand how its finances are looking at any given time. This can only be accomplished by maintaining accurate accounting records. Accounting is also important because it enables businesses to assess the risks they face and to identify potential areas for improvement. It allows businesses to make informed decisions about their operations.
What is Accounting?
Accounting is the process of recording, categorizing, and summarizing financial transactions.
Accounting is a means of communicating financial information that is used to produce financial statements that are used for decision-making purposes.
Accounting is important for a business as it helps keep track of assets, liabilities, and other essential information such as cash flow to operate a business.
There are a few basic accounting concepts you should familiarize yourself with. This will help you understand and manage your business finances.
In accounting, there are two methods for recording financial transactions: cash basis or accrual basis.
- Cash Basis: Cash basis accounting means recording transactions (expenses and income) when cash is actually received or paid. You only record a transaction when you make a payment or receive payment.
- Accrual Basis: Accrual basis accounting means recording transactions when you incur an expense or earn income. For example, you may receive a bill in September but you don’t have to pay it until October, you will record this expense even though cash has not exchanged hands. The logic applies to income, you record revenue when a customer buys on credit, the customer hasn’t paid you but you still record the income when the sale occurs.
Accounting for small business will most likely require cash basis may be ideal as it is easier and doesn’t require advanced accounting knowledge.
This is all the money that is owed by your business to creditors. This could be other businesses or people who have provided services and haven’t been paid yet. It is important to maintain an accurate record of your accounts payables and when the payments will be due.
This is all the money that is owed to your business. You will need to carefully track and monitor all the money that is owed to your business. You business needs cash flow to survive and collecting accounts receivable are a vital source of cash.
How to Keep Track of Your Accounts Receivable & Accounts Payable?
Have you ever had to keep track of your accounts receivable (AR) and accounts payable (AP)? This is especially important when you are a small business owner. Tracking your AR and AP can help you keep track of how much money you are owed and how much you owe to different vendors. It can also help you make sure that you are paying all of your bills on time. By keeping track of your AR and AP, you can also avoid potential issues in the future.
For example, if you don’t pay AP on time, it could lead to late fees or even bank penalties. If you don’t keep track of AR then you may not get much needed funds in time, which could cause cashflow problems for your business. This means keeping accurate records of anything that comes into or goes out of your business each month. So, it’s important to be proactive and keep track of your AR and AP.
Open a business bank account
Ideally you should open a separate bank account for your business. This will allow you keep your business and personal finances separate. This will allow you to monitor your business financial data such as bank transactions more transparently.
It is easy to open a business bank account. Almost all financial institutions offer business bank accounts.
How to Choose an Accounting Software for Your Business?
There are a lot of accounting software options that will suit your business needs. With so many options it can be difficult to pick one software.
When deciding on the accounting software you will need to weigh the pros and cons of each software. You will need to consider the size and needs of your business. If you are just starting your business and don’t have much activity, investing on a complex software may not be the best option. The cost is an important factor to consider. Why spend on a software with extra features if you are not going to use them.
There are several different types of accounting software available today, including cloud-based and desktop-based programs. Cloud-based accounting software can be accessed from any device, while desktop-based accounting software can only be used on a desktop computer. Cloud-based accounting software generally offers lower costs but fewer features than desktop-based accounting software. Desktop-based accounting software tends to offer more features at a higher cost than cloud-based accounting software. It’s important to choose an accounting software that meets your needs and budget.
Remember accounting for small business probably won’t require a software with all the bells and whistles of an expensive accounting software.
Filing tax returns
Once you start operating your own business you have understand the tax implications of operating a business.
It is important to understand that tax filing deadlines for businesses are different from individual tax filing deadlines.
It is during tax filing that you will appreciate accurate tracking and record keeping of your income and expenses. If you have done this part accurately then it make filing tax returns all the more easier.
If you are not familiar with filing business tax returns then you should seek the help of a CPA to make sure your tax returns are accurate and don’t land you in trouble with CRA.
Accounting for small businesses doesn’t have to be difficult, importance of accounting in business is that it provides valuable information you can use to make smart decisions.