Is it difficult for you to understand the accounting of your business?
You are not sure if your small business is profitable enough because you have never worried about the accounts?
No worry today we discuss bookkeeping for small business hidden secrets medium matt Oliver in detail that helps you to understand the hidden secrets of accounting.
If you have an online store and you still keep paper and pencil accounting, you should update immediately. And it is that business accounting is one of the most important tasks of any online business, but it is difficult to carry it when you do not have a minimum financial base.
Therefore, in this post, we are going to give you some basic notions about basic accounting so that you can start a profitable business and be able to financially manage your dropshipping store in the most professional way possible.
No matter how many sales you generate in your online store, if you do not keep an accounting control of your resale business, things may not go as well as you think.
You need to have a real picture at an economic level about the most important points of your business since sales or cash inflows are not valid indicators to know the real situation of a company.
That is why you need to correctly keep the accounting of your company.
Accounting Concepts For Small Business
When you create a small business you need to know all the accounting concepts to know the financial capacity of your company. That is, knowing how much you earn, how much you lose, how the money is spent and used, etc.
For you to take the reins of your business on the right track, you must know how to read financial statements. So below we will talk and clarify questions about small business accounting. step by step
Small Business Accounting Hidden Secrets
Rational and logical accounting is necessary for all types of businesses. The first thing you should relate to is the basics of accounting and we share a few below.
It is the source of information for any type of financial statement. Books keep records of the financial activities of a company or an individual.
The goal of accounting is simply to record and summarize financial transactions in a usable form that provides financial information about a business or individual,” says medium Matt Oliver.
Most companies manage their accounting system through ledgers or in a computerized way with accounting software, or in a hybrid way (physical books and software).
“A Balance Sheet is simply a picture of a company at a specific time, usually at the end of the month or year. By analyzing and reviewing this financial statement, you can determine the current financial ‘health of a business, ”says Matt Oliver.
The Balance Sheet shows your total assets: current assets such as checking/savings accounts, and other current assets including loan receivables. But it also shows the totality of current liabilities, loans to pay, etc. Equity includes retained earnings from capital and investments.
The categories and format of the Balance Sheet are based on and conform to Generally Accepted Accounting Principles or GAAP. This is the standard to follow for the preparation of financial statements.
It is the money coming from the capital and the investments that the entrepreneurs have contributed. It also refers to excess income over expenses that contribute to earnings after owner withdrawals and deposits.
They are the operations that subtract money. Expenses include loans for your business, monthly expenses like salary, electricity and water bill, rent and other expenses, and cash out.
Refers to the amount of increase in the owner’s equity as a result of sales and other business activities and operations
It is the antonym of income, that is, the amount of decrease in the owner’s equity.
Choose The Accounting Method
Before filing your first tax return, you must choose the best accounting method for your business.
Cash Basis Accounting
It is a simple form of accounting that tracks income when it is received and expenses when it is paid.
This method counts money when it is “won”, rather than received (and the same with expenses). For example, if a customer signs a large contract, the method will count the money as won, even if the customer hasn’t paid yet. It is a more complex method but it allows to give an image of the company in the long term.
Something especially useful for SMEs when informing investors or making fast scaling decisions.
We recommend consulting with an accounting specialist to find out what is the most convenient method for your small business.
What Records Should You Keep?
What are the financial records that you need to monitor the development of your company? Everybody.
You should keep track of the documentation that shows the income, expenses, deductions, and credits shown on your tax returns. This documentation may include:
- Bank statements and credit cards.
- Canceled checks
- Proof of payments
- Financial statements of the bank or your accountant
- Previous tax returns
- Forms W2 and 1099
- Any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return
And not only should these documents be kept until they are delivered to the tax collector. You should keep most records for at least three years, although for some operations you will want to keep records for about five years.
Accounting Control CheckList
The following is a recommended checklist for maintaining precious books.
Weekly Accounting Tasks
- Enter all transactions in your accounting software or Excel spreadsheet.
- Categorize your transactions as they are classified differently on your tax return.
- File or digitize receipts to keep everything in order.
Monthly Accounting Tasks
- Reconcile your bank accounts to protect yourself from any income or expenses that get out of hand.
- Prepare and send invoices (if applicable) in the shortest possible time.
- Pay vendors and other bills to avoid paying interest at all costs.
- Review pending invoices to process accounts receivable and ensure cash flow.
- Review your financial situation. You should ask yourself things like “Do I have enough money to keep trading?” You should check how much cash is in the bank and how much cash you expect to receive soon.
The most recommended thing is that you schedule a dedicated time to manage the finances of your business. Keeping good records also means that your life will be easier when it comes to quarterly and annual income taxes for your business.
Small Business Accounting Hidden Secrets
Keeping your accounts up to date involves organization and planning. These two fundamental pillars will facilitate your work and allow you to reduce costs, saving time and money.
In addition to taking this into account, understanding some aspects of basic accounting is essential to guarantee the viability and proper functioning of your business.
And last but not least, with a sure knowledge of your books, you will be prepared to make good financial decisions on behalf of your SME or small business.
On the other hand, if you don’t have time to learn and have other challenges to meet, you can outsource your accounting to an external professional.
However, it is important that you know the terminology and how operations work to at least estimate if your business is on the right track.