Basic Accounting for Businesses
You can be a great business person even if you’re not great at accounting. Knowing and understanding the basics can help you make good business decisions.
Have you ever wondered what the difference is between accounting and bookkeeping, or if they are different at all?
When you say bookkeeping, it is the process of recording and organising your financial data. Accounting is the process of using the data prepared by the bookkeepers and reporting the operation’s transactions through cash flows, financial position, and performance reports. In short, accounting involves analysing those records and what they mean to you as a business owner, to your shareholders, and to other stakeholders, including creditors and government agencies (i.e., the taxation office).
Did you know that there are two methods of accounting?
The simplest method of accounting is the Cash method, which can be used by start-up businesses. The cash method is when you recognize revenue or expenses when they are RECEIVED or paid in cash, not when they are incurred.
It is important to note that when you are in cash-basis accounting and you have outstanding payables that are not due yet, it might overstate the health of your business as they are not accounted for as expenses until then.
On the other hand, the performance of your business can be accurately represented using the ACCRUAL method. In this method, revenue and expenses are recognised when the transaction is made, not when it is received or paid. Though the disadvantage of the accrual method is that it does not show real-time cash flow, you can have high revenue but also have little in your bank account if most of your sales are receivables.
Can you do your own bookkeeping?
As a small business owner, you can track your income and expenses.
This task becomes easier once you have accounting software to help you. Most of our clients are using Xero, as it is one of the most user-friendly cloud-based accounting software available in the market. Through this, you don’t have to manually prepare the accounting workpapers and have a higher rate of data errors.
If you do not have accounting software in place and would like to sign up for one, we at Star Advisers offer our clients tutorials and a subscription discount once you engage with us.