Business Accounting: The Language Of Business

Business accounting is sometimes called the language of business, and you’ll soon see why. Business accounting methods keep businesses organized and thriving. The importance is in the details when it comes to business accounting, and though there are a lot of details to take into consideration, it helps to efficiently run a business.

What is Business Accounting?

Business accounting is the way in which businesses keep track of their financial information. This is done by recording, analyzing, and interpreting a business’s financial information in order to keep track of finances and make better business decisions.

Business accounting can be done by one person in the business, an accounting firm, or a team. Business accountants are responsible for analyzing the business’s financial health, and informing businesses of their compliance obligations.

So, why is accounting called the language of business? Just like a universal language, business accounting helps people understand what is going on inside the business. This can help both business owners and financial advisors make productive decisions in business.

How To Do Bookkeeping for a Small Business

Whether you hire an accountant with a business degree, or do it yourself, bookkeeping for a small business is an important part of keeping that business running smoothly.

Below are the basic responsibilities for the efficient bookkeeping of a small business.

Recording Financial Transaction

The first, and probably most important, step is to record all financial transactions in the business. This might include loans taken out for the business, expenses, income, and other relevant business documents, and they would be put into the accounting system.

Logging Journal Entries

An accountant or business owner will record business transactions in a journal, or Book of Original Entry, in a chronological system. The journal entries will typically include both debit and credit accounts in a double-entry bookkeeping system. Transactions that are not included in this journal are entered into the general ledger.

Keeping Ledgers

The general ledger, or Book of Final Entry, is a log of accounts and past transactions, as well as the log of current balances in different accounts pertaining to the business.

Trial Balance Reports

A trial balance report is used to ensure that the total debits equal the total credits. The financial accounts are taken from the ledgers and made into a report in order to see if the columns match up. If the columns do not add up, then this is an indication that there is an error in the ledgers or account.

Adjusting Entries

The accountant prepares adjusting entries to update the accounts in the previous financial statements. These entries are adjusted at the end of the accounting period, and used for accruals of income, expenses, deferrals, prepayments, etc.

Adjusting Trial Balance

After the adjusting entries are prepared, an adjusted trial balance is made. This is, essentially, a second round of trial balance reports which are used to test if the debits and credits are equal after the adjusting entries.

Financial Statements

The final product of the accounting system is the financial statement which is made up of the income statement, balance sheet, statement of cash flow, and other notes.

Closing Entries

Lastly, the system is prepared for the next accounting cycle by closing all impermanent or periodical accounts, such as income withdrawal, and expense accounts. The permanent balance sheet accounts remain open for the next accounting cycle.

Do You Need An Accountant For Small Businesses?

Small business owners can save a lot of time and money in the long run by hiring an accountant.

A hired accountant can help with the following tasks:

• Write up a business plan
• Give advice on the business’s entity structure
• Help obtain the correct licenses, such as business licenses and sales tax permits
• Help set up an accounting system and charts in lieu of hiring a bookkeeper
• Handle complicated compliance issues and labor costs
• Make sure the business meets creditor and license requirements
• Keep inventory records
• File taxes

However, this does not mean that it’s impossible to do on your own. Small business owners can take advantage of cloud-based accounting systems in order to keep everything in order.

How Do You Set Up an Accounting System?

Whether you decide to hire an accountant or record transactions on your own, here are a few important steps to setting up your accounting system so that the business will run smoothly from the start.

Open a Business Bank Account

Before you can begin setting up an accounting system, it’s crucial to open up a separate bank account that will not get mixed up with personal accounts.

Choose An Accounting Method

There are two main accounting methods of recording financial transactions: accrual and cash. The cash method records transactions only once a customer pays for the product, while the accrual method records both the income from a sale and all other expenses.

Before you begin recording transactions, it’s important to choose a method and stick to it.

Record Transactions

Once you’ve set up a preferred method, you will be tasked with recording transactions as we’ve mentioned in the first section. This may be done either independently or by an accountant.

Determine Payment Terms

It’s also important to decide whether you will offer credit to customers. If you decide to do so, you will need to set up a system and method for sending invoices.

Wrap Up

It’s no small reason that accounting is called the language of business. Proper business accounting can go a long way to creating and maintaining a successful business. Some amount of formal education pursued in the field can be quite beneficial. For instance, pursuing a specialized certificate program in accounting can give one the right start for a lucrative career ahead. Business accounting helps a business keep track of all the little financial details which keep a business thriving.