First Step Marketing

Even if you hated math in high school, keeping a good financial record of every one of your business transactions—whether it’s checks received or cash receipts for highway tolls paid while traveling on business—is a basic necessity. After all, every entrepreneur wants to know how much money her business is generating both before and after expenses, to see what all of her hard work is worth.

The good news is that with an abundance of inexpensive and comprehensive accounting software, the accounting tasks of a business are easier and take less time than ever before. These programs are so exacting that they allow you to see, for instance, the precise amount you spent on office supplies during the third week in August. If you can compare your revenue and expenses against the same period of time a month or a year ago, or against the figures in your business plan, you’ll be able to catch expenses that exceed your projected budget and remedy them before they get out of hand.

Here’s a list of some of the information that you’ll want your bookkeeping system to provide you with on a daily, weekly, monthly, quarterly, and annual basis:

• Available cash on hand
• Balances of any business-related bank accounts
• Total of sales and/or cash receipts
• Total expenses (payroll, bills, petty cash, etc.)
• Total in accounts receivable (the amount of money your customers owe you) with details on the balance and how long they are past due
• Other information that will help you to keep financial track of your business

One benefit to making the time to enter the data into your records at least once a week is that it will be easier for you to compile annual figures at tax time. If you also file away paper copies of all your records to correspond with your computer files, not only will you save a lot of money on accountant’s bills in the unlikely case of a tax audit, but you’ll be able to show receipts that back up a specific deduction in response to an auditor’s questions.

There are two different types of common accounting systems that you can use to track expenses and revenue for your business: cash accounting and accrual accounting.

Cash accounting is the simplest method, since income is recorded in your bookkeeping records in the month it is received, and not necessarily when the bank credits the money to your account, while expenses are recorded when the check is written, even if the expense was incurred in a different month and the check cashed in the month after you wrote it.

Accrual accounting is slightly more complicated, but this method provides a more accurate picture of the financial health of a business. Basically, income and expenses are recorded on the day they are posted to your business account, and not necessarily in the month that you received the revenue or wrote a check. This form of accounting is more detailed and requires a bit more time because the bookkeeper must pay attention to endof-month peculiarities (such as when payroll falls on a weekend day), as well as the timetables showing when your bank normally credits your account with checks—and credit card charges, if your business accepts them—and debits it for checks you’ve written.

Most new entrepreneurs and sole proprietors opt for the cash accounting method, because the accrual accounting method tends to provide more details and require more time than most people need or have. But it’s your call; your accountant will be able to help you with your decision.

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This entry was posted on Monday, October 27th, 2008 at 3:46 am and is filed under Accounting, Budgeting, Business Plans, Payroll, Sales, Tax, financial. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.