Small Business Accounting Basics That Every Business Owner Should Know

Posted by Doshi Accountants on October 6th, 2021

We at Doshi Accountants have a varied client bank and have catered accounting and taxation services from Fish and Chips shops and hairdressers, to doctors, pharmacies and dentists. Though our clients are not interested in accounting (that’s what we are there for), they are keen in knowing the basics of small business accounting as having some knowledge about the subject goes a long was in maintain transparency in the business accounts and avoiding careless mistakes. An accountant can tackle the accounts end for you. But it does make sense to have some bit of basic accounting acumen under your belt. One key to the successfully running of a business is being able to sense how your business is doing at a financial level. Merely getting the accounts done thus, is not the end; you need to understand the reports generated which is why we’ve tweaked in a few basics of bookkeeping. These should help you better appreciate the role and reports from your accounting firm.

The Importance of Keeping the Books

Being a meticulous and monotonous task, most business owners prefer to hand over the bookkeeping to an accounting firm. However, you need to go through your books as well and ensure that transparency is maintained as you will be a better judge of your business finances if you are an informed one. How can you improve on profit and productivity if you are uncertain about the financial situation that your business is in? Thus, finances aren’t merely the subject of accounting services providers but instead, a topic that you too should as a business owner, build some acumen in.

Getting Through the Jargon

Understanding bookkeeping is a lot easier if you are clear with some basic jargon. For instance, an asset would be anything that generates revenue or something which the business will benefit from owning like: equipment, cash, inventory, accounts receivable and etc. A liability on the other hand would be opposite to what an asset is as it would be something that is owed by the business. Like a business loan for instance that needs to be paid back with the interest would be a liability; others include: accounts that are payable, unearned service-related revenue and interest payable.

1. When it comes to revenues/income the types that can come in include: rental income, interest income and sales income. Expenses or business expenditure would be the exact opposite as this would indicate what you are spending to keep business flowing in. Mostly payroll and the payment of vendors is the highest in rank of expenditure. Other expenses include: interest expense, salaries and wages, insurance expenses and utilities like heat and light. Equity would equate to the value of the business in monetary terms to each individual owner like stocks for instance or dividends, retained earnings ad owner’s capital.

2. Separate Banking Accounts

The first step that you need to take would be to separate your personal accounts and business accounts as this would make the whole banking process smoother. Not only does this help in making your expenses clearer but also if there is an audit then your personal assets are protected. For taxation and bookkeeping purposes having clearer accounts would also reduce the chances of error.

3. Record keeping is not an option

Important to keep an organised system in place as it makes the process easier if you have all your documents in order. Documents like bank and credit card statements, all cheques written including cancelled cheques, receipts and bills and customer invoices, tax returns, deposit slips and payroll documents all feature in the list of the documents you should keep handy. That’s all you really need to know as if you have a good accountant, you need not really worry much about the rest.