How to Develop Your Small Business Accounting System
Bookkeeping is one of the most important procedures in running a successful business. This accounting is how profit and taxes are determined. Developing an effective small business accounting system only requires the understanding of a some basic financial principles and answering a few questions.
- Decide which kind of system is best for your business: The cash method is great for small businesses, as it is simply a matter of recording transactions as they are paid. The accrual method is better for larger companies with a lot of assets and often involves recording transactions that may be paid at a later date.
- Choose how the business will record financial transactions. Before the personal computer, businesses used bound paper ledgers for this purpose. However, today’s software makes the process easier, faster and more accurate. Though some businesses may employ a combination of both methods.
- Collect information about all accounts for the business. Examples include income, expenses, payroll, assets, etc.
- Make what is known as a Chart of Accounts. This is a snapshot of all of the businesses financial accounts available at one easy glance. Most small business accounting software has this feature.
- Implement the accounting system. Mark every transaction that takes place.
- Review the company’s bank statements each month and reconcile all accounts.
- Take care of errors or mistakes as soon as they are noticed.
- Keep physical copies of all receipts, invoices, payroll reports, petty cash expenses, or any other pertinent financial proof. There are also digital scanners available to record these items for easy access and retrieval.