Accounting is an instrumental part of running a small business. Implementing systems and best practices for keeping track of expenditures and revenues is key to managing 澳洲幸运5官方开奖结果体彩网:cash flow. Without these systems in place, it’s all too easy to lose track of funds or create the financial records necessary to file taxes and apply for small business financing, if necessary. Proper 澳洲幸运5官方开奖结果体彩网:accounting for small businesses encompasses important tasks, which we explore in more detail below.

Setting Up Accounting for Small Businesses

Accounting is a very important part of running any company, including small businesses. It helps business owners keep track of their business-related expenses, 澳洲幸运5官方开奖结果体彩网:liabilities, assets, and income among other things. It also allows company heads to prepare their tax filings. As such, it hel🍎ps a small business owner lay down a proper foundation. This includes four key activities:

• Opening a small business bank account
• Choosing an 澳洲幸运5官方开奖结果体彩网:accounting method (cash or accrual)
• Setting up a chart of accounts
• Determining the fiscal year for the business

Here’s a closer look at each step.

1. Open a Small Business Bank Account

Opening a business bank account allows you to separate business and personal spending, which can be helpful when it’s time to file taxes if you plan to deduct eligible expenses. To open a bank account for a small business, you’ll generally need to have the following:

• Employer Identification Number (EIN) or a Social Security number if you operate as a 澳洲幸运5官方开奖结果体彩网:sole proprietor
• Business formation documents
• Ownership agreements
• Business license, if your state requires one to do business

You may also need a minimum opening deposit if the bank requires one. Minimum deposit requirements can depend on the type of business account and whether you’re opening the account at a traditional bank, 澳洲幸运5官方开奖结果体彩网:credit union, or online bank.

2. Choose an Accounting Method

Your accounting method determines how you report income and deduct expenses for the year. The Internal Revenue Service (IRS) allows you to choose between two options: 澳洲幸运5官方开奖结果体彩网:cash and accrual. Here’s how they compare.

• Cash Method: With the cash method, you report income in the year that you receive it and deduct expenses in the year they are paid.
• Accrual Method: With the accrual method, you would report income in the year that you earn it, regardless of when it’s received.
  

3. Set Up a Chart of Accounts

A chart of accounts is a list of all accounts available for recording tr♍ansactions in your accounting software program if you use one or a general ledger if you don’t. To create this chart, you’d first organize your accounts into specific categories, then further break your organization down into relevant subaccounts.

Each category is assigned a range of numbers that are🐬 used to track individual accounts. For instance, if you have a category for business asset accounts, your organization might look like this:

You’d f🎃ollow this system for all of the account categories that you have. Common categories include asset, liability, equit🎃y, revenue, and expense accounts.

4. Determine Your Fiscal Year

A 澳洲幸运5官方开奖结果体彩网:fiscal year is 12 consecutive months 💜for which accounting activity is recorded. Small business owners can decide when their fiscal year begins and ends—the only rule is that it must be 12 consecutiಌve months.

For instance, you might choose to start your fiscal year on July 1♔ and end it on June 30 of the following calendar year. Or you may choose a more traditional approach and have your fiscal year follow the standard calendar year, depending on what works best for your business. If you operate a seasonal business, for instance, then you may choose to begin your fiscal year at the beginning or end of your peak sales season.

Basic Bookkeeping for Small Businesses

Basic 澳洲幸运5官方开奖结果体彩网:bookkeeping for small business owners revolv💙es around a core set of tasks, all of which are dꦅesigned to help you keep track of where funds are going. The most important bookkeeping practices include:

• Tracking small business expenses
• Recording transactions accurately
• Documenting and filing receipts
• Reconciling 澳洲幸运5官方开奖结果体彩网:bank statements

B💝u🌌t, which expenses should you track for a small business? The short answer is all of them.

Anything that you spend money on—whether it’s your monthly lease payment, utilities, office supplies, or postage fees—should be recorded in your accounting system, and those transactions should be recorded accurately. This ensures that you have the correct amounts when you’re ready to deduct business expenses on your annual 澳洲幸运5官方开奖结果体彩网:tax return.

Taken separately, those tasks c꧅an be time-consuming. Using a comprehensive bookkeeping software program often becomes easier over time. The best bookkeeping software syncs with your business bank acco🌃unt and payroll systems so that you’re easily able to import and export transaction history. We’ll cover some of the best business bookkeeping software options a little later.

Financial Statements for Small Businesses

Financial statements can yield vaꦅluable insights into how well your small business manages its income and expenses. You’ll also need to present up-to-date financial statements to lenders if you plan to 🍬apply for small business financing at some point.

There are three financial statements that all small businesses should consider creating.

• Income Statement: An income statement shows a business’s expenses, income, losses, and gains over a set period. These figures are used to determine your net profit or net loss accordingly. Income statements are also commonly referred to as 澳洲幸运5官方开奖结果体彩网:profit and ܫloss (P&L) stateme🐻nts.
• Balance Sheet: A 澳洲幸运5官方开奖结果体彩网:balance sheet records a business’s assets, liabilities, and shareholder equity. In simple terms, this financial statement will tell you what your business owns and what it owes.
• Cash Flow Statement: A 澳洲幸运5官方开奖结果体彩网:cash flow statement provides a snapshot of how cash moves in and out of the business. It can also tell you how well your business is equipped to pay its bills.

If you’re already 🀅using an accounting software program for small businesses, you may be able to generate these statements automatically using the expense and income information you’ve already en🥂tered.

Tax Considerations for Small Businesses

Running a small business means you have to file a tax return and pay what you owe, if anything, to the IRS. Businesses will need to pay federal and state taxes, as well as any local taxes that may apply. There are five types of 澳洲幸运5官方开奖结果体彩网:small business taxes at the federal level:

• Income tax
• Self-employment tax
• Estimated tax
• Employer tax
• Excise tax
  

Your business structure determines 澳洲幸运5官方开奖结果体彩网:which types of tax you must pay. Remember that if you have employees, you’ll also need to account for 澳洲幸运5官方开奖结果体彩网:payroll tax. If you’re unsure about your tax obligations, you may want to talk to a professional accountant or tax expert for advice.

Deducting Business Expenses

The IRS allows business owners to deduct different expenses. Deductions reduce your taxable income for the year. Some of the expenses you may deduct include:

• Business meals
• Business travel
• Business insurance
• Home office expenses
• Utilities and rent for business premises
• Inventory purchases
• Vehicle purchases or eligible vehicle expenses
• Employee benefits
• Retirement plan contributions
  

Remember that you’ll need to keep track of all of these expenses and maintain the proper records for ꦓeach one. Keeping accuඣrate records serves two purposes:

1. It ensures that you’re deducting the right amounts when you file your taxes.
2. It allows you to prove your deductions should your business be selected for a tax audit.

If♍ you’re using tax filing software, you may have the option to organize and store receipts electronically.

Software and Tools 🦩for Small Business Accounting

Software programs, apps, and tools can save your business time and potentially money if you’re able to ensure more accu🔜rate accounting. Using a software program can also eliminꩲate the need to retain a full-time accountant, which can add to your business expenses.

Additionally, accounting software can help ꦑyou to:

• Create cost predictions
• Run forecasts to determine the potential return on business investments
• Manage inventory
• Manage payroll
• Send and receive invoices
• Track accounts payable and receivables

There are numerous software options for small businesses, with 澳洲幸运5官方开奖结果体彩网:QuickBooks and FreshBooks being two of the most popular. When deciding which software program to use fo🧔r accounting, it helps to first consider what your business needs. You can then compare different programs to evaluate the range of features and benefits that are included, and the overall cost of using it.

🌠 Outs🍰ourcing Accounting Services for Small Businesses

While you could handle accounting for your small business on your own, you may consider outsourcing it to an accounting professional.

If you need to choose an accountant, consider asking other business owners for a referral. If you’re able to get a few names, you can schedule meetings with those that look promising. During your meetinꦓg with them, consider asking the𒁏 following questions to get a better idea of how well they align with your business:

• How long have you worked in the accounting field?
• Are you a 澳洲幸运5官方开奖结果体彩网:certified public accountant (CPA), or do you hold any other professional credentials?
• What type of small business owners do you typically work with?
• What’s the full range of services you provide?
• How much do you charge, and how are the fees structured?
• How often will we communicate, and what is your preferred communication method?

You might choose to work with a virtual bookkeeper if you’re comfortable connecting via Zoom or email. The fees may be lower, but be sure to 🥀ask about their background and experience before you sign a contract for their services.

Advantages and Disadvantages of Outsourcing

Letting someone else handle your accounting means you have one less thing to worry about. Instead of crunching numbers, you’ll be free to focus on other tasks that are necessary to run or scale your business. An accountant can also ensure greater accuracy and may be more knowledgeable about the tax code and reporting requirements.

The disadvantage, though, is that 澳洲幸运5官方开奖结果体彩网:outsourcing means your business’s financial information is being viewed by someone else, which you may or may not be comfortable with. Aside from that, you also😼 have to consider what you might pay to hire an accountant on a full-ti൩me or part-time basis.

Best Practices for Small Business Accounting

Following best practices can minimize room for errors in your small business accounting and heꦏlp you to keep better records. What tho🅘se practices look like may vary from business to business, but at a minimum, it’s a good idea to include the following:

• Maintain separate bank accounts and 澳洲幸运5官方开奖结果体彩网:credit cards for business and personal spending.
• Ensure accuracy in business record-keeping.
• Regularly review financial statements.
• Seek professional advice when needed.
• Back up and secure records.

Setting up a document management system can help with organizing your records so t🃏hat they’re easier to review. There are different ways to organize files, depending on what you need to store.

You might choose to use document management software to keep track of key financial information and statements. You’ll want to periodically back up your files and ensure that you’re adhering to security protocols so your information isn’t compromised. For example, if you need to save a copy of a document separately from other files, you may put it in its password-protected folder inside your document management software.

The Bottom Line

The importance of accounting for small businesses can’t be underestimated. Whether you’re starting a brand-new business or you have some experience under your belt, creating a solid accounting plan can help you monitor and maintain your financial health. If you follow the tips we've laid out above, you'll likely be able to focus some of your time on other important facets of your business.