- A business uses two different bookkeeping methods, such as accrual and cash.
- Segregating the business and personal finances is vital for the organization, and it helps to keep the book clean.
- Single and double-entry are the two ways of bookkeeping, and depending on your company, you should choose which one to prefer.
Bookkeeping is the procedure of organizing and recording the financial transactions of a business. The entire process is done by a bookkeeping Perth professional, helping to figure out if your organization is making profits. Also, it helps in determining the areas of expansion and in which direction you should proceed. In short, bookkeeping is a process of sending invoices, record transactions, making payments, preparing financial statements, and managing accounts. To help small businesses work in the long-run, here are the different bookkeeping methods to be used are:
Determining The Accounting Method
A business uses two different bookkeeping methods, such as accrual and cash. Accrual bookkeeping is a process of recording profits and expenses when it happens to leave the cash transfers. However, in cash-based transfers, the profits are recorded when actual cash is involved in form of payables and receivables. Small business organizations prefer cash accounting as effective cash management. However, the accrual method is mainly preferred by large organizations.
Understanding The Accounts
In business, the accounts refer to records of financial transactions like payroll or sales. Several accounts are there, like:
- Liabilities: It is debts and obligations owed by the organization, such as loans, accounts, and payables.
- Assets: It is the resources and cash owned by a particular organization, such as inventory, receivables, etc.
- Equity: It is the value remaining after the liabilities are deducted from assets. It indicates the owner’s held interest in the organization, like retained earnings, stake, etc.
- Expenditures or expenses: It is the cash flowing out of the organization, such as utilities, salaries, etc.
- Income or revenues: It is the revenue earned by an organization or sales.
Having A Separate Business And Personal Finances
Segregating the business and personal finances is vital for the organization, and it helps to keep the book clean. Many businesses start maintaining the records separately, but after some years, they miss it. It is the most important thing, and you should not commit this mistake. Improper allocation of funds can lead to complicated tax fillings. A great way to do it is by keeping separate accounts for both.
Consider The Method Of Bookkeeping
Single and double-entry are the two ways of bookkeeping, and depending on your company, you should choose which one to prefer. In single-entry bookkeeping, every transaction is entered only once. It works perfectly when the business is simple, and the sum is entered in the asset column only. In the double-entry accounting system, two entries are recorded for every transaction. It means in the ledger both credits and debits are entered. First, the debit is entered, and after that credit.
Frequently Reviewing The Process
Frequently monitoring bookkeeping practices indicates that you need to do an extra bit of work. But it is worthy as you can review if every transaction is recorded. It will avoid complications related to transactions, leading to which you might need to pay more. Outsourcing cloud bookkeeping services can reduce the unnecessary expenses of a company.
Balance The Books
Balancing the book is essential before closing as you should not it quarterly. The debit and credit sections should be balanced. If it is not, then you might have missed out on some transactions. In this instance, you need to go to the ledger and journal and check what you have missed. However, it can be eliminated if you have frequently reviewed the process.
Suppose you have borrowed some money to buy a piece of equipment or a vehicle. Even if you are taking a loan to purchase a piece of furniture, it will come under a loan payable account. It shows how much amount you need to pay or what you owe.
Preparing Financial Reports
After balancing the books, you must know how to prepare financial reports. Summarizing the flow of revenue in the account will give an image of the financial status of the company. The financial reports can be:
- Balance sheet: It summarizes liabilities, assets, and equity, and the sum of equity and all liabilities, should be equal to total assets. It gives a view of how you can expand your business.
- Cash-flow statement: The cash-flow statement is also known as the P&L and contains all cash items. It shows from the areas you are earning money and where you are spending more. As a result, it gives you an idea of where and how you should invest.
- Profit and loss statement: It is also known as an income statement, and the financial report breaks expenses, costs, business revenue, etc., over a span. It gives a comparison of your expenses and sales.
Tracking Business Expenses
When it comes to business-related activities, tracking business activities is essential. For small businesses, it is important to have notes on all the transactions taking place. Otherwise, the expenses will keep on increasing, and you will not have an idea of it.
Set Up Payroll
Without employees, there is no existence for a company. Irrespective of small or big your company is, your employees play an integral role. Several laws are there that you should keep into consideration while hiring. It can be checking the overtime regulations and minimum wage laws, applying for EIN (Employer Identification Number, etc. Also, it helps to keep details, like addresses, names, and the payment that you need to make to the independent contractors.
Hiring The Best Experts
When it comes to bookkeeping perth, you must ensure to hire the best. Many professionals are there, but hiring insufficient professionals will increase your expenses. Great professionals will help in reducing the unnecessary payments of your company while reducing tax complications.
If you want your business to be successful and big, hiring a bookkeeping expert is essential. It is the most important thing that will direct your company and show where you should invest. With that, you can decide to cut down on your expenses and increasing the company’s earnings. Therefore, look for the best bookkeeping experts and book an appointment with them today itself.