Accurately extracting financial information from business transactions and maintaining a comprehensive record of all income and expenses are the two main components of accounting for small businesses. This is a necessary task that, particularly in the beginning, aids small business owners in effectively tracking and managing their finances. In addition, accounting services for small businesses help keep you informed about the past and current performance of your company.
Choosing the Accounting Technique and the Fiscal Year
Your reporting of income and deduction of year-end expenses is based on your accounting method. The two options available to you are accrual and cash. Here’s how they compare.
Twelve consecutive months during which accounting activity is documented make up a fiscal year. The only requirement is that the fiscal year must consist of 12 consecutive months, but small business owners can choose when it starts and ends.
You may choose, for instance, to have your fiscal year start on June 1 and end on April 30 of the following year. Alternatively, if a more conventional approach suits your business better, you can ask your tax accountant in Houston to have your fiscal year coincide with the regular calendar year. For example, if your business is seasonal, you can decide to start or end your fiscal year at the start or end of your busiest sales period.
How Do You Maintain Accounts for a Small Business?
Below are the steps that you need to follow to maintain the accounts of a small business. Make sure to go through all the steps carefully to understand the complete process and successfully prevent committing any mistakes while accounting. It may take some time but it is very much recommended, to a point, a professional to make the process very easy.
Examining Monetary Transactions
The first step in the accounting process is analyzing financial transactions and entering those relevant to the business entity into the accounting system. Loans obtained for personal use, for instance, are not listed in the business records. The second step is preparing source documents, which are also known as business documents. A source document is the basis for documenting a transaction. Your law firm accounting services, can streamline the process for you.
Journal Entry
The double-entry bookkeeping method records business transactions in a journal, also called Books of Original Entry, in chronological order. Law firm accounting services use a journal to record recurring transactions to make this process easier. The general journal contains the transactions that are debits and credits of the transactions
Ledger
A general ledger is a group of accounts that shows the current balances in each account and the adjustments made to each account based on previous transactions. Another name for it is the Books of Final Entry. Look for a reliable accounting firms in Houston, to help you in this complex process.
Trial Balance
To determine whether the total debits and total credits are equal, a trial balance is created. A report is created by taking the accounts out of the ledger and organizing them. Both the debit and credit columns’ balances ought to be the same. If not, the trial balance contains errors that need to be located and updated with new information. It is crucial to remember that mistakes can still occur even when the debits and credits balance out. Examples of these mistakes include those brought on by duplicate posting or missing entries.
Modifying Entries
It is essential to adjust entries at the conclusion of the accounting period to update the accounts included in the financial statements. Income, for instance, is earned but not documented in the books. Adjusting entries are made for prepayments, deferrals, allowances, depreciation, and the accrual of income and expenses.
Modified Trial Balance
An adjusted trial balance must be made after the adjustments are finished to confirm that the debits and credits match the adjustment entries. This concludes the procedure before the company’s financial statements are prepared.
Final Submissions
Temporary accounts that are measured on a regular basis, such as the income, expense, and withdrawal accounts, are closed in order to set up the system for the upcoming accounting. The permanent accounts, or balance sheet accounts, are open for the following accounting cycle.
The final step in the accounting cycle is to create a post-closing trial balance to verify that the debit and credit amounts are equal after the closing entries are made. Since the temporary accounts are closed for this accounting cycle, only real accounts are included in this trial balance.
Finance Made Easy with Accounting
It is impossible to overstate the significance of accounting for small businesses. Having a strong accounting plan can help you keep an eye on and preserve your financial health, regardless of how much experience you have or don’t have.
When handling your company’s books, you can save time by using bookkeeping and accounting services in Houston. Don’t let accounting overwhelm you. Let Houston Small Business Services simplify your financial management so you can focus on growing your business. With our expert guidance, accurate record-keeping, and tailored accounting solutions, your business will thrive
