Running a successful business takes a lot of time and work. One of the keys to running a successful small business is sound accounting and financial management. This is true for a business, whether it accepts cash only or deals with large volumes of credit transactions. The section of Business accounting contains how-to guides and tips to help with managing cash, maintaining a balance sheet, protecting against employee fraud, valuing intangible assets, and other business accounting related topics. In this section you can also find resources for starting new businesses and examples of financial documents for your small business.
The importance of balance sheets
Balance sheets are an important tool for companies to organize and keep track of their finances. Generally speaking, a balance sheet lists the assets and liabilities of a company. Assets include current assets, fixed assets, and “other” assets. Current assets include cash that is on hand (including in the company’s bank account) and accounts receivable, which are funds that customers currently owe to the company. Fixed assets are those that produce income but are not intended for sale. Some examples of fixed assets are building improvements, office furniture, and real estate. Businesses should take any depreciation into account when listing the value of fixed assets. Other assets may include fixed assets that are intangible, such as patents, copyrights, or key employees.
The liabilities of a business are basically the debts of the business. It is best to arrange the responsibilities in the order of when they should be paid. Generally, a business has current liabilities and long-term liabilities. Current liabilities include any debt that must be paid within one year. Examples of such responsibilities include employee salaries, income, and taxes. On the other hand, long-term liabilities are debts that will be paid more than one year after the balance sheet creation / update date. A mortgage or the amortization of funds received to start the business are examples of the long-term liabilities of a business.
Embezzlement Warning Signs
Embezzlement occurs when an employee steals money from the business where he is employed. Not only is it an unfortunate situation for a business owner, it is also a crime. Hopefully, you will never have to deal with an employee who misappropriates funds from your business, but it is a good idea to keep an eye out for certain red flags that could indicate that an employee is embezzling funds. While there are several signs that could indicate misappropriation of funds, some common signs include:
- Duplicate payments
- Unusual drop in profits
- Missing documents
- Lack of cash for minor expenses
Of course, finding out if embezzlement is occurring in a business requires the owner to consider all the circumstances. For example, although an employee who suddenly lives in a way that cannot be supported by wages could indicate misappropriation of funds, it could be that the employee’s spouse has received a substantial raise or that the employee received an inheritance. It is important not to jump to conclusions without thoroughly investigating the situation.
Small Business Accounting Basics
In today’s competitive market, there are many strategies to move forward and increase your company’s profit margin. In order to properly grow your business, you will need to understand the basics of accounting and bookkeeping and how they interrelate to help your business. Keep going as FindLaw takes you through the basics of accounting for your small business.
Accounting vs. Bookkeeping
Accounting and bookkeeping often fail to serve the same purpose. In the broadest sense, this is correct, as both bookkeeping and accounting aim to help companies grow in a financially responsible way. However, when you take a closer look, you will see that bookkeeping and bookkeeping are two separate tasks that share a symbiotic relationship.
Bookkeeping mainly involves
- the systematic recording of all financial transactions of the company
- Accurately extract financial information from business operations into a form that can be analyzed for matters related to taxes, financial reporting, and the financial condition of the business.
Accounting generally encompasses:
- Interpret the data provided by the proper recording and extraction of financial information
- Financial advice on the current and future direction of the business
To make this basic overview of business accounting easier to refer to, we will refer to accounting as the only accounting idea as they share the same goal and contain overlap in the tasks typically assigned to them.
Accurate record keeping
Much of the accounting involves the “grunt” work of taking your expenses and income, systematically and meticulously entering them into your records. You must faithfully keep every receipt and record all financial transactions, including payments received and expenses paid by the company. You will need to keep detailed records and keep receipts for at least four years (for tax purposes).
Through this information, you can create income and expense summaries on a regular basis (daily, weekly, monthly) to get a snapshot of the financial status of your business at any particular time and to track your progress.
A general ledger is the single document that presents a record of income and expenses and each financial transaction will make its way to the ledger. It serves as a permanent record of the relationships and financial progress of the business. All important financial documents related to the business, such as balance sheets and profit and loss accounts, are derived directly from the general ledger.
There are also subledgers, who eventually make their way into the ledger as well. For example, you may have a creditors subledger in which you record each check issued. Once the check is deposited by the recipient, that information is entered (or “posted”) in both the subledger and the general ledger.
You will then need to take that information and post it to the ledger (s). You do not need to post to the ledger after every transaction, but you should post at regular intervals that are appropriate for your company.
How often it is posted to the ledger will depend on the amount of business that is generated regularly. Large clothing and restaurant retailers have high daily turnover and expenses, and these transactions must be meticulously recorded and posted at the end of the day. On the other hand, if you have a lower business volume, you can probably publish on a weekly or even monthly basis.
Your general ledger provides you with information with which you can accurately measure the financial health of your business and also provides a defense against an audit (be it tax or other external audit). You’ll also want the record so that you can quickly find any discrepancies to resolve customer disputes (for example, if you’ve double billed, you’ll be able to see it).
Writing a financial report
The financial report is basically an analysis of the information provided by your accounting records and records. You take the data and distill it in a way that helps you see where the business is making money, where cash flow needs to be improved, and the status of your capital investments.
A financial report can be a single document or several smaller documents, depending on your wishes and the needs of the business. Common reports include:
- Results accounts,
- Declarations of capital,
- Balance sheets,
- Profit and loss accounts, and
- Cash flow statements.
The bookkeeping and accounting tasks described above can be done on your own, but with the easy availability of quality accounting software programs such as Quicken, you should seriously consider using these programs to help you with the task. The software can help you keep accurate records and create basic financial reports to ensure the safety of your business.
Hiring a lawyer
While the information above may seem relatively straightforward, accounting is a complicated subject. If you have questions about business accounting, or would like guidance on any aspect of running a small business, it is best to contact a business and commercial attorney who specializes in commercial and commercial law on how to maximize your maintenance efforts. of records to comply with tax and other laws.