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A comprehensive guide to business accounting in 2022

July 6, 2021
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As much as businesses care about their product or services, they must also care about their finances. This is because healthy financials are a direct indicator of business growth and scale. This could translate into efficient document management, robust financial recordkeeping, thorough internal auditing, and smooth financial accounting functions. 

Businesses can benefit from having a solid business accounting foundation as it reveals opportunities for efficiency improvements, growth, or even transformation of your core business operations.

But, where do small business owners and accountants start with evaluating and fixing their financial processes? This guide will discuss everything you need to know about business accounting and how to get started.  

What Is Business Accounting? 

Business accounting focuses on three essential statements: balance sheet, income statement, and cash flow statement. It’s important to keep a good record of your expenses and revenue for several reasons. Doing so makes it easier to do your taxes, helps protect your business from identity theft, and prevents you from overspending or mismanaging your funds. 

Please note that sound accounting practices rely heavily on effective record keeping and document organization, but they are not the same.

Accounting vs. Bookkeeping 

Accounting and bookkeeping are often used interchangeably; however, these are discrete responsibilities. 

Accounting is an analytical function whereby all the financial documents and records managed by bookkeepers can be reviewed and validated.
This helps identify inefficiencies, growth, and optimization opportunities and helps prepare financial reports and tax returns.

Bookkeeping entails recording purchases and sales, credits and debts, and maintaining an accurate record of all financial information. 
This generally covers all day-to-day financial transactions, as well as managing payroll for employees.

Technically, bookkeeping can be a function of accounting since detailed and accurate records are necessary for any analysis. But, accounting goes beyond this basic organization to provide insights and technical analysis on complicated things, like reducing technical debt.

Therefore, as an entrepreneur, you must master some basic bookkeeping best practices.

Fundamental Accounting Terms for Beginners

There are some accounting terms that every business owner should know, regardless of who handles business finances. These terms include many of the basic parts of accounting that you will encounter as part of standard bookkeeping operations. 

Knowing the common vocabulary used helps prepare you to keep better financial records. It also allows you to work more effectively with a professional accountant while providing a framework to understand and organize your business operations. 

Additionally, understanding the concepts below will help you:

  1. Readily recognize the financial health of your business
  2. Make decisions to respond to changing market conditions or cash flow
  3. Ensure compliance with tax laws and other financial regulations

Accounts payable: The money your business owes another business (i.e. a vendor or client.)

Accounts receivable: The amount of money that your business is owed.

Assets: Everything that is owned by your business. This includes property, stocks, equipment, and revenue. 

Expenses (or expenditure): Any item or service that your business has to spend money on to generate revenue.

General ledger: A complete record of every single transaction your business has made.


Liabilities: Debts or other financial obligations that are owed by your business. This can include business loans that you take out to assist with funding. It also includes your accounts payable amount.

Revenue (or income): The amount of money your business generates from selling products or services to any other businesses or individuals.


Resources for Further Reading 

There are plenty of resources available to business owners looking for accounting information, specifically when it comes to an understanding of the terminologies involved. Here is a curated list to help address your basic accounting needs:

  • Basic accounting terms from Accounting.com provide a useful primer for those who need an introductory resource. 
  • Accounting terminology guide from the New York State Society of Certified Public Accountants (NYSSCPA) is extensive and detailed, covering both basic and more advanced terms and concepts of finance.
  • Basic accounting terms, acronyms, and abbreviations from Rasmussen University cover standard terms and some of the most common acronyms, initialisms, and other jargon used in accounting and finance.

These guides and websites can provide valuable information as you start to build your business. Getting familiar with the jargon and terminology of accounting can also help explore the other resources below. This will further guide you toward adopting different strategies, tools, or routines for managing financial records.

Cash vs. Accrual Accounting Method

The major difference between cash and accrual accounting is when things are recorded. With cash, transactions are immediately recorded when money changes hands. 

In accrual accounting, however, you would be recording your revenue when earned and expenses when billed (in other words, accounts payable and accounts receivable), whether or not they have been paid. With accrual accounting, you use the double-entry method of recording transactions, so you can see that your expenses and revenue have balanced out. 

Generally, cash accounting is simpler and more similar to how most people manage personal finances since it only records money paid or received. However, accrual accounting can be more accurate, as it paints a more detailed picture of a business’s outstanding (unpaid) invoices. It also allows businesses to project revenue and debt more accurately over a longer period. 

Accrual accounting is also preferred by investors for publicly traded companies, as it can provide a better projection of value over time. However, accrual accounting’s focus on pending payments can make recognizing immediate cash shortages harder. In contrast, cash accounting focuses on immediate transactions on cash on hand, making identification of cash shortages easier.

Ultimately, the best accounting method depends on the type of business and industry you are in, whether you need to present financials to potential investors or other stakeholders, and how important real-time cash tracking is. Therefore, you will want to take the time to decide which of these accounting methods works best for your business before enforcing it throughout the company. 

Common Accounting Reports 

Each of the three common accounting reports has a different purpose. 

Balance sheet: This report looks at assets and liabilities to ensure that they balance each other out. It also looks at your equity as a business owner during a certain period.

Income statement: This is also known as a profit and loss (P&L) statement. It provides a breakdown of your revenue and expenses for easy comparison.

Cash flow statement: The cash flow statement summarizes your businesses’ inflow and outflow of cash. 

These reports are widely used among business owners and accounting departments. Each one highlights important information and comparisons for you to look at and analyze to drive data-driven financial decisions.

Accounting Tools and Systems 

Most businesses use different software and tools to streamline and manage different aspects of accounting efficiently. Some companies, however, may still choose to use paper-based systems and processes.

To determine which tools and systems are right for your business, you need to learn more about the different ways you can manage your finances. 

  • Paper-based systems: Businesses that do not incur many employee-initiated expenses or operational costs may choose to use a paper-based accounting system. This system is fairly efficient if the volume of expenses the business incurs is small.
  • Spreadsheets: This is a simple yet effective way to manage your finances. Create basic and complex reports using spreadsheets (Microsoft Excel, Google Sheets, or Apple Numbers). You can also use a spreadsheet template to store and manage your data more efficiently.
  • Accounting software: You can buy software programs with built-in algorithms to track and organize all business expenses. These programs allow you to create expense reports, revenue reports, manage payments, and more. 
  • Cloud computing: Cloud computing enables remote access to your accounting data so that you can collaborate with other team members, record transactions, and view reports from anywhere.

Accounting software brings convenience to financial management by integrating banking services, credit cards, payroll software, time tracking apps, and expense management tools. This helps you centralize all accounting data and ensures error-free records for financial reporting. 

Getting Started with Business Finance Management  

There are three things you should do as soon as you establish your business. First, you should open a business bank account, then choose a bookkeeping system, and lastly, establish a payroll system. Business owners must have these things in place to build an expense management process for their business. 

Open a Business Bank Account 

When you start a business, one of the first things to do is open a business bank account. You may need a local bank if you plan to go into the physical office to do transactions, or you may prefer an online bank where you can easily deposit checks and look at your statements. 

The offerings at each bank may vary slightly. Still, in general, you have the option to open an account for an LLC, a sole proprietorship, or a corporation, depending on how you plan to establish your business. Find a bank that works for you. 

Set Up a Payroll System

You have a couple of different options when you are ready to set up a payroll system. First, you can work with your financial institution to make cheques from your business account to your employees. This is the most straightforward way of doing payroll and works best with a small staff. 

Another option is to use a payroll service like ADP or Paychex. These companies provide software and services to businesses to pay their employees. This option works best if you have a large staff or want to have a more automated process. 

Creating and Maintaining Effective Accounting Processes 

Once you have established your bank account, payroll, and bookkeeping process, it’s time to create a system for organizing all of your financial documents and records.

It is essential to record and track every dollar of revenue and expenses incurred by your business. Employing a solution to manage expense reports and expense reimbursements digitally can streamline the potentially large scale of data and record-keeping needed to monitor revenue and spend accurately. 

In addition, an expense software makes pre-accounting easy by automating expense reports, saving time and resources for organizations. It also ensures essential data and documentation are organized, accessible, and complete. 

Make it a habit to keep an accurate record of business transactions. Your daily, weekly, monthly, and quarterly accounting tasks will feel less overwhelming with a system in place. We’ve put together short checklists for each to help you get started!

Daily Accounting Tasks 

There are not too many accounting tasks to do every day, but the most important is checking your cash position. As a business owner who wants to establish their business, you mustn’t overdraw from your accounts or spend more money than you have. Therefore, checking your cash position every day will allow you to stay on top of your finances. 

Weekly Accounting Tasks

These are some of the tasks that your business needs to do weekly to keep track of your finances. 

  • Record transactions
  • Document and file your receipts
  • Pay vendors (and other unpaid bills)
  • Review your projected cash flow
  • Send invoices

It would be best to do these tasks weekly to keep the work and time spent manageable.

Monthly Accounting Tasks 

There are a few monthly accounting duties that you should set up as recurring tasks in your calendar. 

  • Compare last month’s balance sheet to this month’s
  • Check inventory
  • Review past due bills (accounts payable)
  • Check on accounts receivable for money owed
  • Process payroll
  • Approve tax payments
  • Review the budget and compare it to last month’s

These tasks do not need to be done every week but are important enough to be done every month. 

Quarterly Accounting Tasks

Some tasks need to be done each quarter, most having to do with taxes. 

  • Prepare a revised profit and loss statement
  • Review sales tax and make  payments
  • Figure out income tax and make  payments

Many businesses will pay their income tax and sales tax quarterly. Thus, tracking and recording all of your expenses, including managing travel expenses and revenue, is essential. This information allows your business to understand taxes and the amounts your business owes efficiently. 

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