Understanding accounting and bookkeeping basics for successful small business

Being an entrepreneur of a small entity is difficult. The availability of limited resources regarding time and money has made it challenging. Monitoring multiple functions of an organization becomes difficult. Especially accounting and bookkeeping, your daily activity. The incorrect recording will have a devastating impact on the entity.

Adequate bookkeeping and accounting are essential for a successful business. It helps in evaluating the business performance. Analysing the record assists the entrepreneur to make corrective actions. It also helps in further enhancing the performance of the entity.

Nowadays, companies are looking for one complete solution for their multiple-dimensional needs. Through accounting services at Vaughan, you can outsource your bookkeeping and develop strategies to streamline your accounting process.

Bookkeeping and accounting

Bookkeeping is recording all the financial transactions of your business. Each financial transaction is recorded by a bookkeeper, based on the accounting system used by businesses.

The bookkeeping systems include:

• Human resource management
• Inventory Management
• Working capital Management
• Business Continuity Planning

While bookkeeping has a much broader perspective. It requires the application of international financial reporting standards (IFRSs). This is considered as a yardstick to compare the performance of a business. It helps interpret, analyse and summarise financial activity.

How bookkeeping and accounting make your business sustainable

Managing a business is challenging and requires a lot of continuous improvement, especially for small-sized businesses. Bookkeeping and accounting have become an essential part of the organization. It ensures the effective operations of the entity. Most well-established companies have realized the importance of bookkeeping. They have invested in effective bookkeeping and sustainable accounting software. They already have a specialized department for it.

Bookkeeping has provided many benefits to businesses. Some of the primary key benefits are:

• Through bookkeeping in-depth analysis can be performed on the financial health of an entity
• It has promoted rapid decision making in an ever-changing business environment
• Makes businesses leaner and adaptive
• It has assisted entities to avoid regulatory and legal exposures
• Companies can easily comply with regulatory requirements regarding taxation.

Overview of accounting and bookkeeping process.

5 Key elements of accounting:

1. Assets: Resources owned by a business (e.g. Account receivable, Inventory, Cash, etc.)
2. Liabilities: Obligations and debts the business owed. (E.g. Account Payable, loans)
3. Revenue: Income earned by the business.
4. Expenditure: Expense incurred by the company
5. Equity: Capital injected by the owner.

Maintain general ledger

For a successful business, maintaining financial ledgers is crucial. The general ledger is a basic way for setting up your individual ledgers. There are three ways of setting up your general ledger.

• Spreadsheet Based
• Bookkeeping software
• Cloud-based bookkeeping software

Double-entry system for bookkeeping

Double-entry system: each transaction is recorded twice. One for credit and the other for debit. The result of a trial balance, which would be used for the preparation of financial statements.

Record cash flows

It is crucial that every entry is recorded correctly and in the right account. Recording cash flows will determine the exact liquidity position of a business. Determine every ledger that will be debited or credited. Any error in recording transactions will lead to a mismatch of trial balance.

Balance your trial balance

This is the last and important step for bookkeeping. It is necessary to balance both the debit and credit sides of your trial balance. This step is often done at the reporting date, usually quarterly, semi-annually, and annually.

Prepare financial reports

Once your trial balance is tally and closed, the next step is to add some meaning to the numeric values. It can be as financial statements prepared under an applicable framework. A set of financial statements will depict a clear picture of your company’s financial health. Primary statements of financial statements include:

• Balance sheet

The balance sheet report summarises company assets, liability, and capital. It assists in the business’s valuation and shows the company’s net worth. It also shows the company’s liquidity position.

• Profit and loss statement

A profit and loss statement or income statement summarises the company’s revenue, cost, and expenses. It helps the company in assessing and evaluating profitability.

• Cash flow statement

It shows the company’s total inflows and outflows of cash. It depicts how the company has used or generated cash in a particular period.

Confidentiality and data protection of your accounting records

Confidentiality and data protection are essential to ensure smooth operations of the business. Any breaches of the same may cause penalties and poor reputation among the public.

Outsource an accounting service

Don’t start bookkeeping services unless you have the proper knowledge and practical experience of it. For professional bookkeeping and accounting services, you can outsource your accounting services. Organizations are looking for accountants who are specialized in bookkeeping and are cost-effective. They take advice from the accountants of Vaughan to make their bookkeeping services highly efficient.