Business accounting is a key function of a business that involves keeping track of various transactions being conducted on a daily basis. With efficient accounting, small businesses are able to gauge the net worth of the business and the profit realized on an annual or semi-annual basis. Small businesses usually tend to ignore bookkeeping practices and this ultimately impacts the ability of the entrepreneurs to accurately analyze the financial performance of the business and expand it across geographical boundaries.
At the core, accounting is bookkeeping where every transaction must be entered into the relevant journals and ledgers. Every transaction conducted by the company would result in dual impact on the system as a debit and a credit entry will be made. You can either opt for cash based accounting or accrual accounting whereby in the former, you will be required to report transactions based on inflow and outflow of cash and in the latter you will be required to report transactions based on the inflow and outflow of goods and services. Business accounting would also involve bank reconciliations whereby bank statements received are compared to the bank account maintained in the general journal.
Software for bookkeeping is easily available where entries are documented and updated automatically into the relevant ledgers accounts. The software will also allow the company to extract its balance, profit and loss, account and balance sheet at the year end to highlight any discrepancies.
Business accounting could also entail managing a payroll system as one of the greatest costs incurred by small businesses is that of human resources. The payroll system usually involves a list of employees whereby specifying the wage rate per hour or per piece will produce the wages of the employees. Salaried employees are also managed by the payroll system whereas tax deductions made by the employer are also accounted for.
Every business incurs a tax liability based on profits realized and this needs to be paid on an annual basis. The tax is computed on the basis of taxable profit that is different from accounting profit due to different assumptions placed by taxation authorities and accountants. Furthermore, quarterly taxes are also required to be submitted to relevant authorities and these include sales and payroll tax returns.
Hiring an Accountant
Keeping track of accounts requires specialized skills and an entrepreneur might not have the necessary skills for maintaining accounts or might not find the time to keep record of every transaction conducted. Small businesses usually feel that hiring an accountant does not add value to the business and rather creates an extra cost to the business. However, hiring an accountant would allow the sole proprietor or partnership to maintain efficient business accounting and effectively reduce the chances of errors. Small businesses can hire accountants on a part time basis and therefore reduce the cost of an accountant while also ensuring proper bookkeeping.