When you ask almost any business owner, that is the least favorite part of their business, most will state that it is accounting. Even so, 41% of small business owners take on the role of accountant/bookkeeper for their business without any help from a professional.
As with any business, as your business grows the account will also become more complex, especially when dealing with taxes and having to report to tax authorities. For these reasons, it can be easy to become devastated by the amount of financial data and requirements that you face on a daily, monthly, quarterly, and annual basis.
Bookkeeping is one step of accounting which involves maintaining financial documents and transactions. It is defined as the activity or occupation of keeping records of the financial affairs of a business. Source Websters Dictionary
Bookkeeping tasks include the following:
Accounting is different in that it takes the financial records created by a bookkeeper to create financial reports, models, and forecasts. These analysis' provide you as the business owner with deeper insights into your business that basic bookkeeping does not necessarily provide.
Accounting tasks include the following:
This method of accounting requires that you record income or expenses when that the cash enters or leaves your bank account. This Using this method will essentially make your financial records mirror your bank activity in that the cash movements will be recorded for the same dates.
Cash accounting can be a great choice for small eCommerce businesses when reporting taxes at the end of the year. The reason being that when you report your income taxes, you will not have to pay income taxes on the payments that you have not received yet. This deference can be a great benefit, especially if you have a large outstanding receivables at the end of the year.
Although cash accounting may work for smaller businesses, it may be best to use the accrual method of account if:
Unlike the cash method, the accrual method requires that you record income and expenses when they occur rather instead of when the cash moves to or from your bank account. For example, if you sell Product A today but do not get paid on it for another 60 days, under the accrual method, you would record that sale as of today.
Accrual accounting has been referred to as the traditional account method as it is the system that most financial institutions use. The reason being is that it provides a clearer view of how your business is performing from a financial aspect, whereas cash accounting represents how much cash that you have at a given time. Accrual accounting also offers the ability to make more accurate financial projections.
If your business is organized as a corporation or partnership, you will need to request an Employer Identification Number (EIN) from the IRS. This number is an unique 9-digit identifier of your business to use on all tax documents. One can apply for an EIN online and receive it immediately by email.
One of the most important parts of owning a business is keeping your personal and business finances separate. For that reason, one should open a dedicated business bank account for their business. Most payment processors have business accounts, which one should set up if they plan on using them for their business.
One of the best things to happen for businesses is the advancements in technology, especially surrounding accounting. Accounting software can save your business much time on data entry, reporting, and other tasks that were previously time consuming.
Below are some well known free or paid accounting software:
