How Business Accounting Works

The people are their own business every day. If you're thinking about them, you probably have a vision of what you want the company to be. What inspires you about your business is the product or service that you have to offer, the success that you imagine the freedom and lifestyle that you are sure they will come - in time. What hole or even frighten you is the plethora of numbers that you have to fight. You will be asked to elicit business issues, the starlings than an empty answer. Cash accounting? Accrual accounting? Profit and loss account? Projections? Huh? 

Whether it's fine oil paintings and selling of pork belly on the road, your company is in some form of accounting. The word alone can cast a glaze over the brightest eyes, but in this article we show you that the accounting process is greater than crunching your numbers. It is a tool that helps you "for" what your company has done, is doing, and hopes to do in the future. Accounting can be a bit like a picture, and a little like a puzzle to solve. Despite the bad press, it can actually be fun. 

Key to Success 

The first step to making accounting fun to get to grips with the terminology. If your heart skips a beat when someone on your balance sheet, you can calm down by learning exactly what a record is and how it can help you. We 've a glossary of accounting at the end of this article to you over the hump. 
Secondly, that accounting is more than numbers. It includes databases of your customers, your suppliers and your employees if you have them. The information you keep on these people and businesses will help you plan your business and your future. With proper accounting, you may discover that the people in the Florida Keys to buy a barrel in February pork bellies. You have every right to plan a travel sales for the entire month. See? It is always interesting. 

Thirdly, the key to a successful accounting is in setting up your accounting records and reliable data entry. It is a system that is uniquely yours. Recording of transactions and accounting information, and it must be regularly reviewed. It is not a good picture of your company, if the color (data) are in boxes in the basement. There is nothing more difficult than the task of going back to find and enter reams of old information. If you do, you stand a good chance to make something wrong. 



Do you need a CPA? 

CPA can be a wide range of services, from setting up and managing your accounting consulting and tax preparation. 
If for no other reason than tax planning, it is a wise decision to consult an accountant. Accountants, you can generate the reports and accounts, you must manage your business, as well as you, with tax laws and taxes. 

You need to find an accountant that you can create a friendly and trusting relationship with. Here are some things to look for when setting accountants or CPA: 

Are they licensed to practice in your state? 
Do they have experience with your size and type of business? 
Do they have good references? (Please ask for recommendations from your bank, employees or colleagues.) 
Are they accessible at all times and promptly return your calls? 
Can you insight into other areas such as personnel or operations? 
Are they in the community? 
Do you trust and feel comfortable with them? 
If they are in a professional manner? 
It also helps you to manage your accounting and taxes for you with the planning and preparation, you may also want to set a bookkeeper or CPA to: 
compile financial statements 
Review of statements by you and you to find problems or questionable article 
an annual audit of the books to make sure everything is accurately maintained 
For help in finding an accountant or CPA, there are many databases on the Internet, but the best way to recommendations from friends, business partners, your legal adviser, banker or other trusted sources. 



Software or Shoe Box? 

An early question you should answer is whether the establishment of a manual system or a software program. You think your small sideline business does not deserve a software program developed by the splashy field, as running the government of the District of Columbia. Think again. Let's say you find weddings at the weekend, a week. The maximum you have events in one year will be 52nd That sounds manageable from a shoebox. But you can buy meat, cheese, and wine is in. use for Sally's wedding, the rest of Sue's. Sally's mother to pay in three installments, and you have become so busy we can not remember when the last check came in. Did you write it? Where? 
Software, you can simplify your bookkeeping, by avoiding the double-(or triple) input of data. You log in here and the system will be where you need it another day. It will tally totals and groups for you, saving endless hours on the machine to add. Software will help you understand the procedures for dealing with the endless flow of paper that your business generates. But you need a system which ensures that Sally's payment, irrespective of whether this system in a shoe box or in the computer. 



Accounting vs. Bookkeeping 

On the terminology: We have already said, the word "accounting" and "accounting". Accounting is the big picture, the system remembers that the data (including humans), save your transaction history, gives you the reports - the all - important, pictures of your company. Accounting and Payroll, an area of particular importance, since large fines may be small errors. Of equal importance is the tax status of your company. Accounting is the system which reports and information that you need. 
Accounting is the tedious part - the systematic collection of the amounts, dates and sources of revenue and costs of each of you. Think of accounting as a huge sieve, and the bookkeeping, because the process of pouring things into it. Stirred by the things and you get the information you need for your business. 



Cash or Accrual 

Somewhere along the line, you will be asked whether your system is on a cash or accrual accounting. If your sales are cash sales, and all your purchases to be paid if you elect them, then the answer is simple - this is cash accounting. If on the other side, then the supply of goods or services, and will sometime later, or if the supply of goods and for them at another time, an accrual-based accounting could usefully for you. 
These two bases of accounting produce completely different results. If you are already doing business, and it is not necessarily money, it can be in both directions. Choose a month (or quarter if you do not have many transactions) and for the month, included in cash and cash-out - the actual payment you receive and make. Add the columns (in and out) and move the smaller of the larger. You have just created a cash-based profit and loss account (income statement) for the month (or quarter). Well, the numbers again, but this time list all invoices and cash sales (but not the payment of bills), and the list of bills that you have received from your suppliers and your cash. But don 't list of payments made on invoices. Add the columns and not the mathematics. You get a different result. Accountants usually recommend the accrual accounting basis in order to get a better picture of how your company is doing. This is one of the first questions you have to decide when your books. 



Breaking the System Down 

Now here are the steps that follow: 
Select a starting point. Many new companies as a sideline before they are placed in a bona fide company. If this is your situation, you must select a starting point for your accounting. Remember that you need to complete all business from that date forward, so do not go too far back, unless absolutely necessary. If you close your fiscal year, wait and run the new system with the new year. 


Select your accounts. Think of this in terms of assets and liabilities. Assets include checking and savings accounts, accounts receivable (money due from customers), inventory, and also devices that are converted into cash. Liabilities include the money you owe to others (payables), your credit card balance, and all other liabilities that are expected to be paid in the following fiscal year (This could include sales tax, payroll taxes, insurance, etc.) . 


Collect the following information: 

Company Name 
Employee Identification Number (EIN) or your Social Security Number 
The dates of the year 
The type of forms that you use for your taxes (Accountant assistance may be needed here.) 
Sales tax rates, if applicable 
A list of items you will sell (products and services) is also an ID number or the name, price or the rate of what you sell, and whether what you sell is taxable (sales tax) 
How you would like sales - of items, type of article, etc. (The officer, with accounting software is helpful in this regard.) 
(If you decide to inventory) The cost of your inventory and the quantity on hand 
A list of customers, addresses, phone numbers and email addresses 
A list of vendors with names, addresses, telephone and e-mail 
The list of categories you use to save costs - Some categories are fairly universal, such as utilities and postage. Others are primarily for your company. If you already have with your business as a sideline, look at the costs you have incurred and the categories into which they fall. 
There are other questions you have before, in connection with accounting, but not necessarily in the field of setting of your books. We already have the task of the paper trail available. Filing an art - and a real sore spot if you do not do well. You need to ask how you plan to unpaid bills. How will you collect the money that your customers owe you? Remember, the bride, Sally, in our early example. What if her mother does not mean that the final payment and ignored your statements and calls? 

This decision does not sound like fun, and perhaps also the other decisions you face and to collect all this information you still afraid. Most people on this task with some sort of fear. But think of it as a creative process. After you are born a company. If your business buzzing with sliding transactions into their correct slots, you can click a button on the screen of your computer and get a picture, hopefully in black. You can smile and say, "Hey, this is my business!"