Small and medium enterprises (SMEs) consider accountants as a very important part of their business. There is a massive amount of pressure placed on an accountant because, to run an enterprise successfully, good foundation is required in various aspects of SME accounting, accounting procedures, accounting standards and accounting concepts.Clients say their accountant brings a lot of value and the most valuable source of information. After a sleepless night thinking about his company, an accountant is the person an entrepreneur is most likely to call in the morning.
The accounting process
When you’re starting a business, designing accounting process is important. With well-defined account processes and account procedures in place, you will increase efficiency and get your business started right with the right business accounting procedures.
Identify the transaction for recording journal entries
In today’s world, every service or good that is transacted is done through some form of credit as every transaction doesn’t involve cash and can be in the form of purchase orders, loan agreements, invoices, etc. So record the transaction as a journal entry. In journal entry you should record a debit to your supplies account and a credit to your accounts payable. To be aware of such account procedures is important for business accounting.
Posting the entry in ledger
The next step is to create T-accounts or ledger accounts by listing all the debits and credits to that account. Create a trial balance at the end of the reporting period which lists out each account and the current balance of that account. Totaling all the left-side (i.e, debit) should balances the right-side (i.e., credit) balances.
For example, depreciation expense is periodically recorded for items like furniture’s and machinery’s to account for the use of the asset and the loss of its value over time.
Financial statements are prepared using trial balance. Using the total from the statement which is found by subtracting expenses from the revenue, the owner’s equity statement is prepared.
The most basic accounting principles for business accounting state that any enterprise should maintain balance sheets. A balance sheet is completed by listing all the assets, liabilities, and shareholder’s equity. The balance sheet is also referred to as the statement of financial position. This is valuable information to the owners who wants to determine if or not your company qualifies for additional credit or loans. Balance sheet includes current investors, potential investors, company management, suppliers, some customers, competitors, government agencies, and labor unions.
Financial report is created in the end of year statement. A new set of books is begun each year. Depending on the nature of the company and its size, financial reports can be prepared at much more frequent intervals.
Because accounting procedures for small business is time consuming, it is always safe to organize your files. It only takes few minutes if you do it every month than spending hours and days before 15th April every year. In this way you can avoid annoying surprises. Accounting process helps you to know bills payable and receivable with no delay.