Nyle Wilson 
Accounting may not be your favorite part of running a business, but it is absolutely vital for its financial success. Accounting includes tracking expenses and providing reports to financial professionals as well as maintaining accuracy within your books.
This article covers best practices from bookkeeping (tracking daily transactions) to accounting (analyzing financial statements for insight and decision-making). Learn essential accounting concepts such as account types, balance sheets, income statements and cash flow statements.
Recording Transactions
Maintaining accurate records of financial transactions is of vital importance for small businesses. Whether utilizing accounting software or doing it manually, creating the ideal bookkeeping system depends on both its complexity and your level of comfort with technology. Once collected, source documents like invoices, receipts, bank statements and expense records need to be organized into categories like revenue expenses assets liabilities equity etc.
Small business owners need to keep these documents separate from personal accounts for several reasons. Mixing funds can compromise personal liability protection and damage your credit score, making it harder to raise loans or attract investors. Record every expense, no matter how minor; this will allow you to prepare taxes more accurately while also helping identify opportunities to cut costs or increase revenues. Furthermore, proactive cash flow management requires creating an invoicing procedure and negotiating payment terms with suppliers.
Reconciling Bank Statements
Contrary to accounting software, which may contain errors due to human or computer mistyping, bank reconciliation helps businesses eliminate clerical mistakes from entering their financial statements. Bank reconciliation compares cash account balance reported by accounting software to that found in bank accounts and makes adjustments accordingly to bring both sides into balance.
Timing discrepancies such as deposits still in transit or outstanding checks may also be highlighted by this report. Processing times at banks often lead to deposits and withdrawals taking time, which creates discrepancies between your business records and banking statements.
Mismatches can compromise the accuracy of financial statements and tax filings for businesses, so providing an audit trail with clear visibility for stakeholders helps prevent these discrepancies from compromising accuracy and leading to costly consequences down the road. Furthermore, providing an accurate audit trail provides trust that transactions have been recorded appropriately while also discouraging any unauthorized ones from going unnoticed by creditors or going undetected altogether. Providing this accurate audit trail helps build trust within an organization as it promotes financial health while simultaneously reducing errors that might otherwise go undetected or unnoticed which may cause costly repercussions later down the road.
Maintaining Accuracy in Financial Records
Accurate financial records are key to managing business finances and meeting regulatory compliance. Small businesses must adhere to labor laws, tax regulations and industry-specific rules; failing to do so could result in fines and other legal consequences for misreporting or inaccurate record-keeping practices.
Proper bookkeeping practices can help you avoid these errors by accurately tracking all expenses and creating a clear audit trail. Other accounting best practices include creating a straightforward invoicing procedure, matching bank statements to internal records, and producing quarterly or annual financial reports for your business.
Separating personal and business finances is also crucial. Mixing funds can lead to cash flow problems, more complicated tax filings and even jeopardized limited liability protection – as well as credibility issues which could inhibit investors and loan providers in the future. A proper accounting system will enable your small business to achieve greater profitability and growth.
Filing Taxes
Filing taxes can be a stressful time for any small business owner. But filing doesn’t need to be this difficult if your records are in order.
Implementing accounting best practices and systems can save time during tax season and ensure accurate information for review by your financial professional. Furthermore, having sound accounting practices set in place can make applying for small business loans much simpler and confidently.
At your small business, record keeping should be of utmost importance. Track expenses accurately, record transactions accurately, reconcile bank statements and capture receipts as part of this process. Many small companies opt for accounting software programs in order to help manage expenses and processes efficiently.
Tracking expenses is essential when filing taxes, but working with a knowledgeable accountant or financial expert throughout the year to stay on top of your small business’s finances will save money in the long run and prevent costly mistakes.
