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Your Easy Guide to Accounting for Small Business

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    Do you want to manage your finances more effectively as a small business owner? If yes, then you should use this manual. Here, we'll go through the fundamentals of accounting and how it can improve the way you run your company. You should have a good understanding of accounting and how to utilise it to your advantage by the end of this article.

    An overview of some of the most well-known accounting software packages' capabilities is provided in this blog post. We hope you find this advice useful, whether you're just starting out in business or have been managing your firm for a while.

    Although starting a small business is challenging, managing your finances doesn't have to be. You may use QuickBooks Online to manage the accounting for your small business by following this simple guide.

    Everything will be covered, including how to create invoices, keep track of spending, reconcile your bank account, and file taxes. Read on for advice to help you take charge of your finances, whether you're just getting started or searching for methods to simplify your bookkeeping process.

    You might not think you need to be an expert in accounting as a small business owner. However, a fundamental comprehension of the most important accounting concepts will assist you in identifying development prospects, potential issues, and smarter company decisions. You will receive a basic introduction to accounting ideas and how they apply to your small business in this manual.

    Do you feel overwhelmed by your accounting responsibilities as the owner of a small business? You're not alone if you find it difficult to keep track of your finances; many small business owners do as well. But don't worry, it's not as difficult as you would think. This manual will give you some basic accounting advice that will help you run your company more efficiently.

    It's challenging enough to run a small business without having to worry about managing your funds. But if you don't keep up with your accounting, it might cost you in the long run. To assist you in managing the finances of your small business, we have created this simple guide. You can prevent any unpleasant surprises down the line with only a few minutes of work each week.

    Key takeaways

    • To make your small business accounting easier, open a separate business bank account.
    • Accurate transaction recording can reduce your risk of underpaying taxes and assist you in claiming the maximum number of tax deductions.
    • Regularly review financial statements to guide your business decisions.

    Although it might not be the most exciting aspect of running your business, small business accounting is one of the most crucial. Understanding how to handle your money can help you maintain the viability of your company, the accuracy of your taxes, and a high level of profitability for years to come.

    You can position yourself for future success by grasping the fundamentals. Put your small business on the right track by following these nine steps.

    Set up your accounts

    Although it might not be the most exciting aspect of running your business, small business accounting is one of the most crucial. Understanding how to handle your money can help you maintain the viability of your company, the accuracy of your taxes, and a high level of profitability for years to come.

    You can position yourself for future success by grasping the fundamentals. Put your small business on the right track by following these nine steps.

    Record every transaction

    As it provides an accurate record of your financial activities, bookkeeping is a crucial component of small business accounting. You should keep track of your spending and income each week if you want to be an excellent bookkeeper. Don't wait until you have a mountain of receipts before you start.

    Keeping track of your spending not only helps you understand your financial flow but can also help you make the most tax deductions possible. To save time while filing, classify each item according to the deductible categories. You can pay exactly what you owe and avoid costly late payment fees by properly monitoring your income.

    In case of an audit, keep all of your receipts and other financial records for at least three years. You don't need to retain a drawer full of paperwork or a box full of disorganised receipts because small business accounting software frequently enables you to digitally save these records.

    Track your financials

    Your financials, in a broad sense, are the reports or statements that give you information on the financial state of your company.

    In order to be aware of how your business is functioning at any given time, it is crucial to understand what they are and how they are produced.

    The balance sheet, the income statement, and the cash flow statement are the three most crucial financial statements to consider.

    1. Balance sheet

    A company's net value is primarily determined by its balance sheet.

    By stating how much your company has (its assets) and how much it owes, this provides a snapshot of the health of your business (its liabilities).

    Cash, receivables from customers, inventories, pre-paid insurance, investments, real estate, buildings, and machinery are a few examples of assets.

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    Liabilities include things like accounts payable, salaries and wages due, notes or loans that must be paid back, and interest that must be paid.

    2. Income statement

    The income statement displays a company's performance or outcomes (also known as a profit and loss statement).

    Use this report to keep track of when your company is profitable or losing money.

    The operating items segment and the non-operating items component of this statement are often separated.

    The revenues and costs related to producing, importing, and selling are shown in the operating items section.

    The non-operating items area includes revenue and expense data for activities that are not directly related to the usual business operations of your organisation.

    3. Cash flow statement

    Because your start-up capital might not be enough to meet your everyday needs, managing your money is particularly crucial for small business owners.

    As a result, you would need to precisely estimate and plan for funds coming in and leaving out.

    You can figure out how much money you have in the bank to spend by knowing and comprehending the income of your company and where it comes from.

    Your cash flow statement, commonly referred to as the statement of cash flows, is located there. Utilizing it might assist in ensuring that you pay your employees and suppliers on schedule.

    Reconcile your bank statements

    While recording transactions is the primary purpose of accounting, it also includes reconciling bank statements, which involves verifying that your financial records are accurate.

    When the bank sends you an account statement each month, compare the bank's transactions to those in your books. Investigate any discrepancies you discover. Most of the time, there is nothing to worry about.

    Suppose a customer sent you a payment, but it hasn't yet been received by your bank. When examining your statement, make the necessary adjustments to your records to ensure that every transaction is recorded under the appropriate month.

    By including this stage in your small business accounting procedure, you can maintain your records organised and immediately identify real bank problems or fraud.

    Stay on top of your accounts payable

    The money you owe to creditors and suppliers is listed in your accounts payable. Since you often receive the item prior to paying an invoice, this sum is shown as a liability on your balance sheet, a financial statement that contrasts your assets and liabilities.

    Knowing your responsibilities and when they are due is your responsibility as a small business owner. Set yourself a reminder to make your payments on time.

    Managing business taxes

    You need to make sure you're on top of your taxes in addition to controlling your revenue and expenses. What you should be aware of is as follows:

    1. Self Assessment

    Income tax is collected using a mechanism called self-assessment.

    If you operate as a lone proprietor, you must register in order to file your taxes. Once your firm has begun, you should register as soon as you can (or by the deadline of 5 October) to avoid penalties.

    2. Corporation tax

    Corporation tax applies to:

    • Limited companies
    • any international business with a branch or office
    • Cooperatives, clubs, or other unincorporated organisations (such as a community group or sports club).

    You are in charge of computing and filing your corporation tax if you own one of these types of businesses.

    You must pay corporation tax on your profits if you operate a limited company. For profits up to £300,000 (and profits exceeding £300,000), this is currently set at 19 percent.

    By the conclusion of your accounting month, you must file your company's tax return. If you require assistance with corporate tax, you can:

    • Appoint an accountant or tax adviser to help you
    • Call the helpline

    3. VAT

    The majority of goods and services sold by UK companies that are registered for VAT are subject to value-added tax, or VAT.

    VAT is collected on behalf of registered firms, unlike other taxes. You must impose the appropriate tax rate on any goods or services you sell once you have registered for VAT.

    You must register for VAT if your company generated a taxable turnover of more than £85,000 in the previous 12 months or more than that in the upcoming 30 days.

    You will also need to file your tax returns using the software in accordance with the Making Tax Digital (MTD) for VAT regulations.

    Note: Starting in April 2022, MTD for VAT will be applicable to all VAT-registered enterprises, regardless of their taxable turnover.

    It can be advantageous for you to register voluntarily if your income is less than the $85,000 cutoff. Being VAT registered might enhance the professionalism of your company.

    Additionally, if you buy a lot of things, you might be able to get back the VAT you paid on those things.

    You might be able to save time and money by utilising a variety of VAT methods. If you require additional assistance, it is worthwhile to speak with a business accountant.

    4. Staying VAT compliant

    There are two important considerations to keep in mind in order to comply with VAT legislation:

    Your VAT records must be kept for at least six years. You can accomplish this by digitally keeping your records using software. Records must be accurate, comprehensive, and accessible.

    Make certain to produce official VAT invoices.

    To be in compliance with VAT requirements, an invoice must have the 13 components listed below:

    • A distinct invoice number that follows the one on your previous invoice
    • Name of your company and address
    • Your VAT number
    • Date
    • if the tax point differs from the invoice date, it is the "time of supply."
    • addresses and names of clients or trading names
    • details of the products or services
    • sum total, excluding VAT
    • the total VAT amount
    • amount for each item, except VAT
    • number of each kind of item
    • VAT per-item charge rate. Indicate that there is no VAT due on an item if it is exempt or zero-rated.
    • These values each have a separate sum.

    Utilising accounting software that also produces invoices is the most effective method for ensuring that your bills are in full compliance at all times.

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    It's critical to remain on top of this since they may get in touch with or visit your company to verify the accuracy of your VAT records.

    Budget for other expenses

    Your company probably has ongoing expenses in addition to accounts payable. These expenditures could include of rent, utilities, wages, credit card processing fees, inventory restocking costs, etc. Make and stick to a budget that takes into account these anticipated expenses and leaves room for unforeseen ones to make sure you never go over your allotted money balance.

    Follow up on unpaid invoices

    It's not always enough to just send your customers an invoice. They require encouragement from time to time to pay. Follow up with everyone you need to at the end of the month by keeping track of your accounts receivable, or the money owing to you.

    It's crucial to keep track of how long each invoice has gone unpaid. Many companies will offer customers 90 to 180 days to make payments before sending a reminder. For every 30 days that the invoice remains unpaid, certain companies will tack on a late fee.

    You can work with a debt collection agency to get the money owed to you if a bill goes unpaid for more than 180 days. These organisations often absorb between 25 and 50 per cent of the total. However, they are still free to take whatever steps are required to make the debtor pay, including going to court or showing that they have the financial means to do so.

    For a small business to expand, keeping track of outstanding invoices and taking action on them are crucial since customers can quickly take advantage of any accounting oversight.

    Decide if you need professional help

    You won't have to spend as much time thinking about the books yourself if you hire or outsource these responsibilities to a professional bookkeeper.

    In the end, how comfortable you are accepting responsibility for these processes will determine how you proceed.

    Even while it might seem like a lot, doing all of these bookkeeping activities should only need a few hours every month, especially if you utilise accounting software.

    For new business owners and sole proprietors, you could discover that you can complete practically all of these small business bookkeeping responsibilities on your own. Additionally, you will pay less to the bookkeeper.

    As you develop, though, you'll have more things to consider and it will take more time to complete your books.

    Annual business accounting tasks

    You commemorate a few events once a year, including your birthday, significant anniversaries, and possibly other holidays. Even while "inventory review" and "tax filing" are probably not on your list of accomplishments, they are nevertheless significant, particularly when talking about yearly accounting responsibilities.

    1. Review past-due receivables

    Now is the moment to review substantial past-due accounts receivable and determine whether you should send past due bills to a collection agency, write them off for a deduction, or believe consumers will eventually pay.

    2. Review your inventory

    Examine your present inventory to estimate the value of unsold items. Any inventory write-down results in a tax deduction at year's end. You will overstate your inventory balance and pay more taxes than you should if you do not write down unsalable inventory.

    3. Fill out forms 

    The annual earnings of your full-time workers and the majority of independent contractors must be reported by a certain date. This deadline also applies to mailing copies of the tax forms to your former employees.

    For contractors who made less than $600, a form is not necessary. Think about using an e-filing service to save time and prevent mistakes.

    4. Review and approve full-year financial reports and tax returns

    Before submitting your company's full-year financial records to your accountant during tax season, carefully study them. Check your return for accuracy before signing it based on your full-year financial reporting. The corporation will come to you, not your accountant, for any additional taxes, fines, and interest if an audit reveals any tax underpayments.

    Types of Accountants and Accounting Professionals

    Following your exploration of the terminology in the accounting dictionary, you might be interested in learning more about the career options open to accountants or the many sorts of accountants you should seek out for assistance with your company's finances.

    Numerous specialist vocations are included in the accounting industry. Auditor, book-keeper, certified public accountant, and payroll accountant are examples of possible job titles for accounting professionals.

    Cost accounting, financial accounting, management accounting, and tax accounting are among the specialities. The material in the next part may be helpful to accounting students and business owners who are thinking about hiring accountants.

    Business accounting checklist for success

    It's okay if these accounting requirements seem overwhelming; they are. But you can accomplish this with careful planning and a few deep breaths.

    You can create financial reports, handle taxes, and handle other small business accounting activities with the use of accounting software like QuickBooks.

    This kind of software can significantly simplify your life as a business owner. But if you're still unsure, don't be hesitant to enquire about getting assistance from a reputable bookkeeping firm.

    Final thoughts on how to keep books for a small business 

    Writing down a to-do list will help you stay organised and guarantee that all of your duties are finished on time and correctly if you're new to business bookkeeping.

    After that, you can remind yourself to pay vendors, follow up on unpaid bills, or submit a grant application.

    You can feel assured that you'll be ready for all tax needs and make sure your firm stays healthy by considering how to start accounting and bookkeeping for a small business.

    You'll be astonished by how soon the list of activities becomes second nature, despite the fact that it initially seems long.

    Small business accounting basics. Accounting is a massive topic, but for most small businesses it boils down to: Keeping records of business transactions (basic bookkeeping) Creating accounting reports to help manage the businessDealing with taxes.

    How to set up accounting books for small business: 7 steps
    1. Select an accounting method. ...
    2. Determine how you will record transactions. ...
    3. Set up a chart of accounts. ...
    4. Open a business bank account. ...
    5. Determine how your business will get paid. ...
    6. Keep a record of expenses. ...
    7. Make a schedule and set reminders.

    It can be daunting dealing with government paperwork when you run your own business. This is why so many small business owners hire an accountant when the first tax filing is due. But they can also help you cope with more than just tax returns. They can help your company interact with the government in other ways.

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