Finance is a fundamental prerequisite for any business to succeed, but an entrepreneur’s deficiencies are frequently related to his or her lack of expertise in these areas.
Accounting is the language of business that summarises a firm’s financial situation and aids in determining what the company owns, what it owes, and how well it did during the previous period. To stay track of the money spent and determine the productivity and profits from the initial stage of a startup, the corporate needs to implement proper accounting techniques and methods that help strategize the savings. This provides entrepreneurs with a way for maintaining accounting information.
One must select an accounting method before beginning business accounting. Selecting one of two approaches is important before submitting an income tax return.
- Cash Accounting
This system is the simplest form of accounting and tracks the income and expenses on their actual basis when they are received and paid.
- Accrual Accounting
This accounting counts money when it’s “earned” rather than received, the identical with expenses. Although it is more complex than the Cash Accounting system, it gives a more accurate picture of the business within the long term.
Daily bookkeeping, preparing and delivering invoices to customers, assuring prompt payments and receipts for the dues, monthly reconciliations, calculating the tax liabilities and submitting tax returns are some of the most frequent financial duties that a startup has to deal with. It is possible to track and maintain records manually or technically using computer systems.
Below are a number of the major terms to remember while accounting for a business:
Bookkeeping: To evaluate the precise financial picture and ensure that the appropriate amount of taxes is paid, the process of recording all revenue and expenses is necessary.
General Ledger: It’s a simple form where a bookkeeper enters the sums from sales, income, and outgoing costs. Posting entries to the ledger is described as the recording act.
Chart of accounts: The data that has been captured needs to be organised and accurately categorised into type of accounts including income, expenses, assets, and liabilities.
Trial balance: This displays each account chart in its entirety at a certain period.
Balance Sheet: The record equation represents the assets, liabilities, and equity holdings on a specific date. It includes the present & non-current assets, liabilities include short-term & long-term liabilities, and Equity has the Owner’s Equity and Retained earnings.
Income Statement: It provides a summary of the company’s performance during that time period by listing its revenues and outgoing costs. The Profit and Loss Statement is another name for it.
Cash Flow Statement: This statement shows the inflow and outflow of cash in the business through its three main components as operating activities, financing activities, and investing activities.
Statement of Owner’s Equity: This statement shows the changes within the company’s capital structure due to new investments, any withdrawals also as business incomes and expenses. Tt’s not a necessary statement for startup companies.
To start maintaining the books of accounts, below are the key requirements:
- Bank statements
Reconciling the bank statements monthly helps in balancing the accounts with the bank balance.
- Credit card statements
It is as important as the bank statement which helps in recording all the expenses accurately.
Accounting for workers expenses, wages and salaries are one among the important tasks in bookkeeping. This includes everything from managing employee personnel records to retaining employee time records.
- Invoices
One of the basic tasks in accounting is raising proper invoices for all the sales and services provided by the company.
- Proof of payment
A copy of a payment proof helps to record the expenses accurately and avoids denial from the recipient.
- Payments received
Make sure that payments received from your customers are adequately tracked, whether or not they pay by check, cash, mastercard, PayPal, or via ACH transfer.
- Bills
It is necessary to ensure that all the expenses are recorded as per the bills provided by the sellers. This helps in maintaining correct output taxes. After entering your bills in accounts payable, track them weekly to form sure that they’re paid on time.
Three basic accounting tips for startups
Make a budget and stick to it
It is not required to start off by investing in pricey software or hiring a certified public accountant. Understanding a business’s accounting requirements is worthwhile. Alongside startups, design budgets and the accounting procedure.
Use the simplest tools for the job
Evaluate the requirements of your business regularly to know the requirements for the best accounting tools that are affordable.
Finally, we realised that accounting is essential for startups to keep track of cash flow. The business performance is then researched in order to make appropriate improvements. One must keep in mind fundamental accounting concepts including assets, liabilities, double entry, revenues, and expenses when compiling accounting statements.
Schedule a call with us today to fix the fundamentals of Financial Accounting for your business or startup.
