Simply put, business accounting refers to the systematic process through which financial information is recorded, analysed, interpreted, and presented. It enables the business to keep track of its financial position and operations and helps the business leaders to make intelligent decisions.
Business accounting enables a company to stay compliant with the regulatory norms. In general, this involves the following functions:
1. Bookkeeping
This is how a company’s raw transaction data is converted into structured financial accounts that give a clear picture of how the business has been faring over a certain period.
2. Trial balance review
3. Preparation of financial statements
4. Regulatory compliance
There are multiple accounting, financial, and general business regulations that a business of any size must comply with. A good business accountant will be up-to-date on all these requirements and make the necessary provisions when preparing the statements.
A checklist for business accounting
Accounting is as much about when you do a task as it is about what you’re doing. Following a proper timeline helps a business stay abreast of its financial situation and eases tax preparation. Here, we round up a checklist of essential tasks related to business accounting to do, as well as when to do them:
1. Check your cash position for the day
It’s vital to start the day by checking how much cash is on hand, as this will fuel the transactions for the rest of the day.
2. Have a weekly/monthly cash flow statement
Periodically making cash flow statements with your expected inflows and outflows for the week/month is vital. This helps you determine how and when you can pay your creditors and what new investments to make. Always use a standard cash flow statement template for consistent records.
3. Record transactions regularly
Depending on the volume of transactions the business handles, it’s essential to record everything in the proper column (debit or credit), either daily or weekly. This can be done manually via spreadsheets, although it’s much more efficient to use accounting software.
4. File all paperwork
It is necessary to have copies of all invoices, receipts, payment slips, and other essential documents. They act as a reference in case of any discrepancy or if an auditor wants to verify something. Have a set of files to organise each category of documents and keep updating as you go to avoid trawling through piles of paperwork at tax time. You can also scan copies of each document and store them in the cloud.
5. Pay vendors on time
Stay on top of your accounts payable and ensure that you pay your due amounts on time. This helps maintain positive relationships with your creditors and increases the likelihood that they will extend the due dates to net 60 or 90 for you.
6. Review your unpaid bills
Every week, look at the documents related to your unpaid vendors, including the billing amount and date due for balance payment. In many cases, vendors may offer benefits for early payment, so you can take that call at the time of each review, depending on how much cash there is on hand.
7. Send out your invoices
8. Balance your chequebook every month
Monthly reconciliation of your cash transaction entries lets you spot any errors early on and address them.
9. Review your ageing receivables
Maintain a record/report showing unpaid invoices and how long they are past their due date. At the start of every month, you can send out reminders to your customers about them. This report is also helpful in indicating whether some of them may need to be written off.
10. Keep tabs on your inventory
Have a regular cycle, be it fortnightly or monthly, where you assess your inventory and replenish the items running out of stock.
11. Keep an eye on your payroll and taxes due
You will likely have a monthly or semi-monthly payment schedule for employees. However, there may be payroll tax requirements, such as national insurance, to meet at different times in compliance with the tax laws, so make sure you’re on top of those deadlines.
12. Check out your P&L
13. Update monthly balance sheets
Balance sheets aren’t just for the end-of-year reckoning. Done monthly, they give you a picture of how you’re managing assets and liabilities and allow you to course-correct in a timely fashion as needed. This helps you spot anything significantly out of the ordinary (like accounts receivable being higher than usual) and figure out why.
