A small business accounting system is a set of financial record-keeping and reporting procedures designed to track the financial activity of a small business says Aron Govil. The system should be tailored to the specific needs of the business, taking into account the size and structure of the business, as well as its unique financial circumstances.
There are 20 essential elements that should be included in any small business accounting system, including:
1. A chart of accounts:
This is a list of all the different categories of expenses and income that will be tracked by the accounting system. The chart of accounts can be customized to the specific needs of the business.
2. Accounting software:
This software is used to input data into the accounting system and generate reports. There are many different types of accounting software available, so it is important to choose one that is compatible with the other elements of the system.
3. Financial statements:
These statements provide a snapshot of the financial health of the business. They include the income statement, balance sheet, and cash flow statement.
4. Income tax return:
This is the document that is filed with the government to report the income and expenses of the business for tax purposes.
5. Accounts receivable:
This is a record of money that is owed to the business by customers who have not yet paid for goods or services.
6. Accounts payable:
This is a record of money that the business owes to suppliers for goods or services that have been receive but not yet paid for says Aron Govil.
7. Payroll:
This is a record of the wages and salaries paid to employees, as well as any taxes and deductions withheld from their paychecks.
8. General ledger:
This is a record of all the financial transactions of the business, organized by account.
9. Trial balance:
This is a summary of the balances in all the accounts in the general ledger. It is use to verify that the books are in balance before the financial statements are prepare.
10. Journal entries:
These are the individual transactions that make up the general ledger. They should be code to the appropriate account and include a description of the transaction.
11. Financial ratios:
These are mathematical relationships between different financial variables that can be use to measure the financial health of the business.
12. Cash flow statement:
This statement shows the inflows and outflows of cash for a period of time. It is use to track the liquidity of the business explains Aron Govil.
13. Balance sheet:
This statement shows the assets, liabilities, and equity of the business at a specific point in time.
14. Income statement:
This statement shows the revenue and expenses of the business for a period of time. It is use to track the profitability of the business.
15. Break-even analysis:
This is a tool that is use to determine how much revenue must be generate to cover the costs of the business.
16. Cost of goods sold:
This is the cost of the materials and labor used to produce the products or services of the business.
17. Gross margin:
This is the difference between the selling price of a product or service and the cost of goods sold. It is use to measure the profitability of the business.
18. Operating expenses:
These are the expenses that are incur in the day-to-day operations of the business, such as rent, utilities, and payroll explains Aron Govil.
19. Net income:
This is the difference between revenue and expenses for a period of time. It is use to track the profitability of the business.
20. Cash flow:
This is the movement of cash into and out of the business. It is use to track the liquidity of the business.
Conclusion:
Small business accounting is essential for the financial health of the business. An effective accounting system will track the revenue and expenses of the business, as well as provide a snapshot of the financial health of the business. There are many different types of accounting software available, so it is important to choose one that is compatible with the other elements of the system. In addition to the accounting software, there are a number of other elements that should be include in the system, such as financial statements, accounts receivable and payable, payroll, and general ledger. Tailoring the system to the specific needs of the business will ensure accurate and efficient record-keeping.