Having a better know-how of the basic accounting concepts will fly you to the top of your small business’s finances. Vancouver Bookkeepers, Although, there are some accountants who usually do some addition or subtraction at their discretion, but many of them follow these fundamental guidelines. And even if you’re using business accounting software, these guidelines will help
you are making productive conversations with your clients and advisors. So let’s have a clear understanding of all these concepts.
1) Economic balancing principle:
The first and the most important step is balancing your personal and business finances. The business finances include rent, supplies, purchases, payrolls, assets and revenue, all these should be recorded separately keeping your personal finances aside.
Also keep in mind that if you own more than one small business, the financial records of each of them should be kept with their respective businesses. Following this economic entity principle will help you have a clear understanding of your business’s earning and expenditure. One of the most important and beneficial measure in this regard is opening a business bank account, checking account, savings accounts, credit card account and merchant services account which let the business to receive credit card and
debit card transactions from the customers.
2) Own a bookkeeping software:
Book keeping is a helpful process that helps you track all the expenses and incomes of your business. This critical information helps the owners to make a right business decisions by providing all the necessary information. You might have to spend a large sum of money if you hire a person to perform the same function and being a small business owner you can’t afford that. Accounting software provides all the important bookkeeping processes in a short time and are completely error free in fetching the required information for your business.
Basically there are two main accounting methods that are accrual based and cash based accounting. Whether you choose any of these two that’s all your will but the point is you have to remain strictly consistent with the accounting method you choose. This is extremely beneficial for all your future financial records. And you can also accurately look over the performance in different accounting periods.
You also need a consistent accounting method to pay all the small business taxes. For changing your accounting method for doing so, you need an approval from Internal Revenue Service.
The conservatism concept allows the accountants use their key judgments while not ignoring the other accounng periods. Generally, in this concept the revenue and businesses are treated differently. Businesses are required to record revenue only when there is a clear overview that it will be recognized, for example by a purchase order or signed invoice. On the other hand, businesses should also record the expenses when they see a possibility that the expenses shall be incurred.
This results in favour of more conservative financial outcomes.
5) Materiality and matching:
Materiality and matching are other important accounting concepts for small businesses. For a business to get materially developed, it should record all the financial transactions that could affect the business’s decisions. Even if these are minor transactions, the point is to give equal attention to them especially in the field of audit. With business’s accounting software, you can get all the major and minor details of every transaction since it is automatically connected business accounts and credit cards. On the hand, the matching concept says that you should make a record of the revenue and related expenses at the same time. This leads to reveal any type of cause and effect relationship between the income and purchases.
In other words, it means that keeping a note or record of the transaction right after it is received from the customer.
For example, you should release your employees salaries right after they have performed their work instead of the week their check is granted.
All the accounting strategies that are mentioned above will help you elevate your business to top of all the competitors. Moreover, you can also have a better know-how of how to run multiple businesses once you gripped these concepts in one small business. So, that was all. Hope you like it.
Have a nice day!