It is important for businessmen to discern the status of their business at any point of the time. They should be aware of how much profit their present business strategy is reaping and what all losses are incurring upon the company. This will ensure the success of business or longer time. Whether a business is at large scale or at small, in both the cases accounting plays a crucial role in calculating the total profit and loss of the company every business year. Small business accounting is one of the easiest ways of availing cheap and reliable accounting services.
Financial processes of small business firms are as important as that of large one. Small businesses too have to undergo the tedious and cumbersome task of accounting on the day to day basis. They can settle the accounting task with ease by hiring professional assistance from small business accounting firms.
Small business accounting involves three prominent steps to strengthen financial front
1. Profit & Loss Statement
2. Balance Sheet
3. Cash Flow Statement
First step, profit and loss statement ensures the accessibility of the previous records. It also helps in knowing how much business is done in the specified duration. This step will ensure the scale of business progress i.e. business is running successfully or not.
Second step, Balance sheet maintenance is one of the most crucial part of the record maintenance. It illustrates how much business has earned and what all assets have been acquired during a specific interval of time. This statement is the testimony of the liabilities over the business too so it is essential to keep daily record of balance sheet. It should be updated on the daily basis without any error.
The third most important requirement of small business accounting is the cash flow statement. This statement depicts the status of future cash balance that will be retained after completing all the payments and liabilities. This is required for the assessment of the capital investment in future. It is made keeping in view the upcoming capital investment and business expenditures.
Two main methods re employed in working out of the small business accounting process:
1. Cash Basis Method
2. Accrual Method
Cash basis method is too easy to comprehend and implement so most of the firms running small businesses employ this method. In this method payments made are referred to as expenses and cash receipts are considered as the income gained. In cash basis procedure daily transactions are recorded in the accounts book. Even if cash paid is yet not cleared then too it is added in the records and when cleared received is added to it.
In Accrual method, the procedure is little complicated as it involves key facets of the small business accounting including pay roll taxation, tax liabilities, income tax, quarterly returns, internal financial flow, individual business transactions, and maintaining daily records.
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