Understanding Basic Accounting for Small Business.

One of the key elements for basic accounting for small business is having a process to record every event as it happens and then have one place to gather the events to understand them and use the information gathered. Most small businesses follow the rule called “Generally Accepted Accounting Principles”. These accounting for small business principles are supposed to keep all accounting information useful and relevant. And to keep businesses accurate and true.

Sole Proprietor or Incorporated

One common method that is used for accounting for small businesses that is not relevant for larger businesses is the need to separate personal expenses from business expenses. Another suggestion is to record 30 days of income with 30 days of expenses on an Income Statement for the month. A key accounting concept that is part of basic accounting for small businesses and large businesses alike is understanding the Accounting Cycle. Every event, like paying a bill, leads to a transaction, in this example a check. That transaction (the check) is posted into a journal (or excel sheet, etc.) These transactions in the journal are gathered together into a financial statement. This process, from paying the bill to recording the transaction is called the accounting cycle. It is of upmost importance that every transaction is captured and recorded in one place with like transactions. Many accounting for small businesses will have accounting journals for cash disbursement, cash receipts, sales, purchase and payroll to name a few. Each type of journal would track transactions specific to each type.


Going Manual

The above is often captured automatically if you are using an accounting software program. If however, you are doing your accounting manually, building simple journals using excel or column graphing books will work just fine. For example, if you were to build a cash receipts journal, you will need to capture information such as the date, who the money was from, the invoice number being paid, and the amount of payment. If your businesses is broken into specific business categories, you may wish to add this as well. For example, if you do a service as well as sell items, require labor costs, etc., the journal should identify what the money is being collected for. How you define your categories is totally up to you and your style of business. You can always add or delete types or categories of income as you need to better track you accounting for small business.

Stay Organized

Another accounting for small business practice when using cash receipts journal is to track customer payments and be able to note those not paid. Throughout the month, as you post payments received, you should look through your journal and make a tick mark next to the invoices being paid. Then, every week or so, look for invoices from last month with no tick marks. Those invoices are unpaid, and may need a reminder invoice or a phone call.

Even the most basic accounting for small business can differ based on the type of business. There are many types of small businesses, from retail to manufacturing to service to non-profit. There are home-based businesses too. Each business has its own little twist on things, and will need its own unique approach to gather all relevant accounting information. If you can find an accounting software program that works for your needs, go with it. If not, don’t be afraid to create your own excel sheets and journals to gather information as you need to.