Overview of Small Business Accounting

In case, you are starting a business, you need to understand and become familiar with few basic concepts of bookkeeping and accounting so that it will help grow your business. In this article, we will guide you regarding some basic concepts of bookkeeping & accounting, tell you some time saving tricks which will help you in becoming a thorough professional in future.

What is Accounting?

Accounting is a systematic process of recording financial transactions related to a business. Financial transactions involve inflow & outflow of cash to/from a business. We need to report these transactions to the government or the tax authorities in the form of tax return.

Business Accounting Basics

Keeping Record of Business Transactions (Bookkeeping)

Every person starts business to make some money. In order to know how much your business is earning and whether you are in a growing position or not, you need to have a clear picture of your income versus costs. Good record keeping is very necessary for a business as –
  • It will tell you that whether you are earning profit or incurring loss
  • It will tell you whether you are moving in the right direction
  • It will help you in knowing the correct position of cash in case you are running out of money
  • It makes your tax return filing much easier as you are having all the information readily available with you.
This record keeping process is known as Bookkeeping. Keeping record of everything is very important and critical for small business accounting.
How to do Bookkeeping for Small Business?
Every business use different methods to record transactions accurately and quickly. Some businesses use cashbook and note down every single sale and expenditure into it. Kindly take a look at some of the methods used below –
Recording income from invoices
There are two methods of recording income from invoices –
  • Note down everything you send & confirm it by checking the bank deposits.
  • Use accounting software to send invoices and rest will happen automatically.
Record expenses
  • Use a bank account for every business transaction and transfer the bank data into your accounts.
  • Set up bank feed from your bank accounts to import your transaction directly into your accounting software.
Recording income at point of sale
  • Download data related to sales & transfer the same to your accounts.
  • Get a POS system and sends data directly to your accounting software.
Keeping proof of purchase
  • Keep your proof receipts (Click photo on your mobile before it get lost) with you as a proof of purchase and enter the extra details into your account too.
  • Installed an app which can read the pictures of receipts & enter the data for you.
When you record revenues & expense transactions on the basis of money received & spent, it is known as cash accounting whereas recording of revenues & expenses at the time they are incurred regardless of when cash is exchanged is known as accrual accounting which gives you more accurate picture of your finances.
Keep the Books
Kindly take care of the following things mentioned below –
  • Set up a business account and use it for all your business transactions.
  • Keep your personal account separate from your business costs & income.
  • Keep your expense receipts with you as a proof to know what each expense was for.
  • Print your bank account statement and make a note beside each item so that when you got accounting software, easily enter all the details into it.

Creating Accounting Reports to manage the Business

While running the business, you know how things are going on but there is a need to generate reports which shows clear picture about your business that whether business cost is higher or lower than what you presumed it to be. You need to generate the formal reports in order to confirm your presumptions about your business.
Accounting Reports
We generate many accounting and management reports in order to access the performance of our business. The most common reports which we generate are as follows –
P&L Reports
This report will give you comparison of your total income & expenses of a particular period. It shows net profit earned or loss incurred by a company in a particular period of time.
Balance sheet
Balance sheet report is generated to know the financial position of the company. It has two sides – Assets (what business owns including cash) & liabilities (what it owes).
Cash flow report
Cash flow report is generated to know the cash inflows & outflows of a business. It is the difference between cash available at the beginning of a period and the cash available at the closing of the period. It shows that how much cash is left with you (more or less) after all the sales, expenses and lending.
Business dashboard
It is live online report which tracks choice of business performance metrics. These reports will help you in taking many decisions such as–
  • Whether to borrow money or not?
  • Which products or services to focus on?
  • Is there any need to hire an accountant or not?
You can also take the help of an accountant in case of taxation. Many accountants & bookkeepers offer these services at a modest flat fee.

Filing Business Tax Returns

Tax is the amount that you legally required to pay to the government every year. Filing of business tax return is mandatory as you need to show your business income to the government and pay taxes too. Taxes are applicable on many things which we buy on daily basis, taken out of regular wages of the people and business also needs to pay the same. The three most common business taxes are as follows –
Income tax
Business pays certain portion of profits to the government.
Add a tax to your sale price of the products and later pay the same to the government in case you are VAT registered.
Employee related taxes
Collecting the tax from the salary of an employee and sends it to the government.
Lowering your Business Taxes
In order to lower down your business taxes, you need some good accounting knowledge to work out all your business costs. Business costs reduce your taxable income and your tax bill as well. Quality bookkeeping is very important. You have to follow specific rules in order to claim your business cost such as wear & tear on assets, diminishing value of intangible assets.
Hire a Tax Professional
Hire a tax professional as early as possible and don’t leave it on to the tax deadline as many businesses already wait till the tax season to hire an accountant. Every accountant has some bunch of clients for which he has to work. Present your income & cost records in comprehensive and well organized way when you first time meet the accountant unless it will be slow tax session for both the parties.

How Nomisma Will Help in Small Business Accounting?

Nomisma cloud accounting software helps small business accounting in the following ways –
  • It makes your bookkeeping & payroll tasks faster.
  • It helps in e-mailing or printing the pay slips.
  • It makes all your sub-contractor billing needs simple & efficient.
  • It provides send facility for sale & purchase invoices.
  • It helps in generating many powerful reports such as VAT reports etc.
If you are looking for small business accounting software, then Try Nomisma with 14 days trial period and get your problem sorted. You can also call our experts at +44(0)20-3021 2326 or e-mail us at [email protected]k