Every business, no matter the size, should endeavor to keep a close eye on its finances. For those who are more creative than financially minded, this may feel a little daunting. However, businesses that carefully manage their income and outgoings safeguard themselves for the future, saving money and time in the long run.
Certified public accountants such as Paul Simonson always recommend keeping accurate records of financial activity. It is considered good practice and ensures that tax obligations are met, whether this is for individuals operating on a freelance or self-employed basis or for a larger company.
The embedded PDF takes a closer look at tax requirements for U.S. businesses.
Recording Financial Transactions
Keeping comprehensive records of all financial transactions is key, such as purchases including materials and services, the sale of goods and services to customers, and compensation to employees for payable hours.
A thorough awareness of relevant accounting terms is helpful when collating all of this information into accurate financial reports. The term assets refers to everything that has been bought or acquired, while liabilities encompasses all debts and accounts payable. To calculate the amount of equity in a business, liabilities are subtracted from the available assets.
Educating oneself on accounting terms is especially important given that some terms have unexpected meanings. Although the terms debit and credit have meaning on a personal level, in accounting terms they have a different significance. A debit is a record of all funds expected to come into a business account, while credit refers to all the money expected to leave the account.
This information can be used to compile income and cash flow statements, as well as balance sheets, all of which demonstrate a company’s profits and losses as a whole. This gives a valuable insight into the profitability of the business and enables business owners to make more informed financial decisions.
Available Tools for Small Businesses
Accounting software is a useful option for small businesses to keep track of their finances and calculate their tax requirements. Reliable accounting software enables businesses to reduce the amount of time spent on data entry and instead highlight potential issues. Additionally, using automated software can help to avoid errors, although a solid foundation of accounting basics is always advisable.
This knowledge can stand businesses in good stead. Should business owners feel that they need further advice on financial matters, consulting a professional accountant can give further peace of mind.