“The word accounting comes from accountability, if you’re going to be rich, you must be accountable for your money”– Robert Kiyosaki
All businesses of any scale require accounting. Accounting is the language of business that develops transparency for everyday transactions and a properly working system. Every business proprietor must be concerned about his account books and understand the basics of accounting practices. Even if you hire a professional for your business accounting, you must know how accountancy works in order to understand the books that your accountant is creating for you. Accountancy is the process through which the net profit or loss of the organization is determined. It also helps you point out the transactional errors that are causing you to lose money or business. Accountancy is highly proportionate to your financial management. A lot of companies fail in the long run if their books lack clarity or information and do not adhere to proper accounting practices.
Accounting Is The Foundation of Any Business Organization
Some business owners restrain themselves from accounting due to incomplete knowledge or basic accounting practices. Many of them stay away from it just because it includes working with numbers. Accounting is the factor of a business that can never be ignored.
A set of rules used for the documentation of everyday transactions is known as accounting. Good accounting practices give the analysis of the working conditions of an organization and help you measure the future opportunities or downfalls so that you can take considerable action.
Managing your own business accounts can be a tough job if you’re bad with numbers, but at least knowing the skills will help you with the proper rules to begin your bookkeeping.
Economic Entity Assumption
The first thing that you must take care of before beginning to cross-check your books is the economic entity assumption.
Economic entity assumption is a mandatory concept used in business and proper accounting practices. It requires the business proprietor to separate the data from their business transactions and personal finances. This is legally required by the business standards and must not be ignored. This concept ensures that there is no interface amidst the operations of the business firm and the personal finances of its proprietor. As it would give the proprietor a chance to show expenses and losses that were personal and the law doesn’t allow it due to taxation.
Another factor that economic entity assumption points to is that the bank accounts of the owner and that of the business must be separated into two different accounts. This will keep the personal and business transactions discernible to the accountant. Depending on your business structure, economic entity assumption will be enforced upon you by law if you have a limited liability company. This is to make sure that the transactional data on the ledgers are being created solely by the business which is seen as a separate entity from the proprietor.
Organization is a Fundamental Accounting Practice
Order and organization are what keep the world from spinning into chaos. So one of the essential skills that you must have is organization in your firm. A business makes a tonne of transactions throughout a business accounting cycle, and as a proprietor, you are responsible for being in knowledge of all of them with an eye to discern one transaction from another. There are principles to organization that help you make sure you are in close sync with your transactional info.
Avoid Cash Transactions
The first principle that you must accept to be organized is to avoid cash transactions as much as you can. Cash transactions leave behind very little or no information about the transaction that is required to document the transaction in your books. Business accounting requires categorizing transactions in the books, but the payments made in cash without proper proof or description of the transaction makes it difficult. If you’re going to have to make immediate transactions, it’s better you stick to credit or debit cards, bank transfers and checks. This way, you won’t have to rely on your memory or a useless little receipt to define what the transaction was about. You can easily record your transactions from the bank statements you will receive.
Timely Transaction Record
The second principle that you must not forget about is to have a timely record of your transactions. Whenever a transaction occurs in your business, make it a habit to record that transaction at the very moment, and on the same day, you must enter the details of the transaction into the proper books of your business. If you’re bringing out the books from 6 months earlier to analyze the current position of your business, the decisions you make would also be bygone. Making perfect decisions for your business requires the transactional data to be regularly updated in your books and the most recent data must be used, which is not more than a month old.
Basic Bookkeeping
If you want to do your business accounting yourself, bookkeeping is a must. Even a basic idea of bookkeeping is necessary in order to record and store transactions in an orderly manner. Bookkeeping is the process in which all transactional data is documented, categorized and recorded in books for separate transactions.
Every business requires bookkeeping to help it know what the problem is if an issue occurs. It is important that you always record every transaction into proper bookkeeping records so that when the time comes, you have not lost small but crucial data by ignoring bookkeeping.
Collect Transactional Documents
Bookkeeping begins with the collection of all the transactional documents like bills, receipts, or bank statements. These documents then provide for all the initial data that is supposed to be recorded in proper books. The bookkeeping records are then supposed to be turned into analytical data which take the shape of financial statements like balance sheets, profit/loss statements, cash flow statements, or income statements.
The basic principles of business accounting may be taken care of by you. Collection of data from every transaction and recording them into different books can be done easily by the business owner who is present during every transaction. But when it gets to the proper analytical statement creation, the technicalities of business accounting may not be easy to get a grasp of. If you wish to have experienced accountants examine your numbers, contact ATS Accounting for queries and book your Free 15-Minute Consultation.
