The importance of accounting for small businesses can’t be underestimated. Whether you’re starting a brand-new business or you have some experience under your belt, creating a solid accounting plan can help you monitor and maintain your financial health. If you follow the tips we’ve laid out above, you’ll likely be able to focus some of your time on other important facets of your business. You might choose to use document management software to keep track of key financial information and statements. You’ll want to periodically back up your files and ensure that you’re adhering to security protocols so your information isn’t compromised.
Do You Need an Accountant for a Small Business?
Small business accounting is the process of tracking, recording, and analyzing your company’s financial transactions. Accounting is important for small businesses because it helps provide insight into a company’s finances and forecasting with accurate data. You can use this information to make decisions about pricing, inventory, expenses, investments, and growth for your business. You’ll need an accounting process to comply with your statutory business accounting requirements. While cash basis may be easier to use, most businesses choose the accrual basis accounting for recording transactions. Under this method, you record income when you make a sale and expenses when you incur them.
Preparing Basic Financial Statements
The second you decide you’re going to launch your business, you should immediately separate your personal finances what is framework from your business finances. That means setting up a separate business bank account to handle all your small-business transactions, including a business savings account to cover your business on a rainy day. At the end of the accounting period, the accountant must prepare the adjusting entries to update the accounts that are summarized in the financial statements.
- You don’t want to be in a situation where you have to pay more income tax than is normally required by the Internal Revenue Service (IRS).
- A chart of accounts is a list of all accounts available for recording transactions in your accounting software program if you use one or a general ledger if you don’t.
- Another easy to use option that’s perfect for self-employed entrepreneurs who need an affordable accounting solution is Neat.
- Adjusting entries are made for accrual of income and expenses, depreciation, allowances, deferrals and prepayments.
- As a responsible business owner, you need to record every single financial transaction you make—so the answer might depend on how many bills you pay and invoices you send out.
Set up a system to pay tax obligations.
Once the adjusting entries are made, an adjusted trial balance must be prepared. This is done to test if the debits match the credits after the adjusting entries are made. This is the final step before the preparation of the business’ financial statements. The key is to ensure every transaction is recorded correctly and in the right account.
Do you need a business credit card?
You already know this, but just to make sure it’s crystal clear, taxes are ridiculously complicated. Small-business taxes vary between industries, states, and business types, so to get the best advice on what taxes your business needs to pay, consult with your accountant. For the most part, though, you’ll probably end up paying income taxes, sales suspense account in accounting taxes, and payroll taxes.
If you’re self-employed, you’ll pay self-employment taxes, which is a little different from small-business taxes and personal taxes. You can get more guidance on how to record and pay a small-business tax with your accounting software and tax professional. Most accounting software automates entering information from the documents above. For instance, receipt scanners let you take photos of receipts that you upload to your software for easy journal-entry generation.
Under the cash-basis method of accounting, you record income and expenses when cash transactions are done. For example, you record revenue for a product only when the customer pays you for the product. Of course, if the demands of running a business mean you just don’t have time to learn QuickBooks, or if you’d rather leave your bookkeeping to a professional, try Bench (that’s us). We give you a team of bookkeepers to handle your bookkeeping and simple software for keeping track of your business finances. Here are some basic steps to get you started keeping track of your small business’s budgeted balance sheet definition financial information, generating financial statements, and filing taxes. You can choose to manage your business accounting by hiring an in-house accountant or CPA.
