Description: Article covers issues and tips that business owners should be aware of while doing their accounts in-house.
Many business owners are caught between outsourcing their bookkeeping versus preparing their accounts in-house. The conflict arises if the business owner does not have either the necessary skills to do the work himself or does not have the resources to hire a third party to review business finances.
The advice among many professionals also varies, depending on their personal circumstances and experience. The general recommendation is that if the business owner has some background in a numbers-related field, he can undertake the task of preparing financial statements. This advice, though well-meaning underestimates the effort that goes into the preparation of accounts. Even though it is better to hire professional accountants to complete the job, here are some tips on doing the bookkeeping yourself.
Bookkeeping for Small Businesses
There are generally two accounting methods that are used by small businesses, cash and accrual. The cash system of recording is based on the flow of cash, both inflows and outflows. Revenue receipt is a typical example of inflows, while paying for expenses is an outflow. The cash system records only when actual money changes hands, either in physical form or through the banks.
The accrual system is based on recording transactions as they become due or have taken place. To highlight the difference, take an example of credit sales. A business has purchased goods from you and has promised to pay back in a week.
The cash system will record this transaction when the money actually comes through for the goods. The accrual method of accounting enters this into the statements as soon as the goods leave the business and an invoice is generated.
It is usually up to the business owners to decide their method of accounting, but it can be dependent upon state laws. For example, the cash system of bookkeeping for small businesses is allowed only up to a certain limit of sales revenue.
Bookkeeping Software: Keep it Simple
Business owners will generally find it tough to prepare accounts through traditional means using journals and the double-entry system. This is because it can prove to be far more complex for individuals who have no educational background in accounting.
The only solution to this problem is using professional accounting software. This can either be a free or paid version. The functionality and ease of use will depend on a number of factors, although generally a paid version is likely to be more user-friendly.
Also, there can be two types of software. Some can be downloaded on to your computer; others are online on a portal. There are advantages and disadvantages for both types, for example, the data downloadable software is safer against hostile penetration but there may be little customer support offered.
Similarly, the reverse is true for online accounting portals where the data may be susceptible to copying or hacking but generally have a higher level of customer support.
During Tax Season
Tax season is the toughest part about bookkeeping for small businesses particularly when there is no professional accountant to prepare financial statements. Even if business owners are not interested in outsourcing entire accounts to professional bookkeepers, tax calculation is a delicate matter and should be handled with utmost diligence.
This is because a number of factors come into play. An example would be the industry your business is operating in and the deductions allowed. If it is an industry that the government is encouraging or protecting, there are bound to be heavy tax benefits, but only accountants who are well aware of these rules will be able to apply these deductions. Hence it is important to educate yourself before indulging in these matters, or seek the expertise of a professional related to the field.
BIO: Josh Rothenberg is the Vice President of Sales and Marketing at EZCFO. Josh is heavily involved in the day to day operations and plays an integral part in the building of the company and setting forth the standards to which the company operates. You can find out more about Josh by following his Google+ profile.