Similar to budgeting, accounting is a process for tracking business finances. Accounting deals with recording, summarising, analysing and reporting your business’s financial transactions, whereas budgeting can help you project expenditures on a monthly or annual basis. Of all the tasks and requirements that come with owning a business, staying on top of your day-to-day accounting should be on the top of your to-do list. Here are a few tasks to tackle as you get your business up and running:
Open a bank account
Having a separate business bank account makes recordkeeping easier and helps simplify paperwork when tax time comes around.
Start tracking expenses
For budgeting as well as accounting purposes, tracking your expenses is an important part of keeping records, monitoring your business’s growth and checking your financial statements for errors. The first step is to develop a system for collecting and organising receipts in one secure place.
Develop a bookkeeping system
Bookkeeping is the day-to-day process of recording transactions, categorising them and checking them against bank statements. Most business owners choose to use a spreadsheet software, or hire a bookkeeper for this task.
Businesses often use one of two accounting methods: accrual or cash. With the accrual method, transactions are recorded on the books immediately after a sale or purchase. With cash basis accounting, transactions are recorded once you receive payment, or a payment leaves your account.
For example, imagine you make a sale in January and receive the payment in February. With the accrual method, you would record the transaction on January’s books. With the cash method, you would record the payment on February’s books. Here are some pros and cons of each method: