Small Business Accounting Guide Step-by-Step

It provides a clear picture of the financial health of your organization and its performance, which can serve as a catalyst for resource management and strategic growth. There are numerous software options for small businesses, with QuickBooks and FreshBooks being two of the most popular. When deciding which software program to use for accounting, it helps to first consider what your business needs. You can then compare different programs to evaluate the range of features and benefits that are included, and the overall cost of using it. Remember that if you have employees, you’ll also need to account for payroll tax.

Open a business bank account.

Accounting involves recording, classifying, reporting, and summarizing financial transactions. The goal of small business accounting is to provide financial information about the business to its stakeholders and regulators and for tax purposes. You can also use this information internally to decide how to allocate resources and manage risks.

In-house accountant

This individual and their team work with you on customizing your setup and monitoring your transactions so they’re accurately entered and categorized for tax purposes. They reconcile your what is business accounting accounts and close your books at month’s end to prevent errors. Finally, they generate the reports you need so you’re ready to prepare your taxes or hand them off to your accountant.

• I could also invite team members to join the project and assign and invite a client with just a couple of clicks.
• There are a ton of laws and regulations that you must learn and adhere to.
• The platform’s friendly interface will guide you through the process, ensuring that you configure the account correctly.
• Business bank reconciliation makes it easier to discover and correct errors or omissions—either by you or the bank—in time to correct them.
• Like revenue, expenses include costs accrued through primary and secondary business activities.
• The basic accounting principles listed here overlap with a handful of GAAP concepts, like matching and materiality, but do not cover all of them.
• NetSuite’s accounting software is all about automation, which can be a huge time-saver (and stress-reducer) for businesses.

The 15 Best Accounting Books for New Small Business Owners

Dawn Fotopulos has written one of the most straightforward, easy-to-read accounting books for small business owners, even those who are numberphobic. We recommend FreshBooks for sole proprietors and companies with perhaps an employee or two—though it’s capable of handling more. Very small businesses can use it for basic money management, like sending invoices, monitoring financial accounts, accepting payments, and tracking income and expenses. More complex companies can add advanced tools that include projects and proposals, mileage and time tracking, and reports.

• It’s useful for small businesses and freelancers who don’t have the resources to hire an accountant or bookkeeper.
• Accessing all included tools using the left-hand menu was easy, as it’s a menu that is always present no matter where I navigated on the platform.
• Organizing and maintaining an accurate record of all transactions will become harder and harder once you start scaling.
• ERP software is typically used by larger businesses while accounting software is more suited for small businesses.
• Xero is best for small businesses where multiple people need to access the accounting software.

Other accounting services small businesses may use include bookkeeping, strategic finance, and tax accounting. Managing profit and loss in business accounting involves calculating revenue and finding ways to cut costs. Profits are earnings or cash in, and loss refers to anything the company has to pay for or money out—record profits and losses on a profit-and-loss statement or income statement. Using a comprehensive bookkeeping software program often becomes easier over time. The best bookkeeping software syncs with your business bank account and payroll systems so that you’re easily able to import and export transaction history.

• Accountants can help take some of the pressure off tax season by handling the preparation and filing for you.
• Additionally, when I generated an invoice, the system alerted me if any necessary information was missing to save the invoice.
• Our premium package even includes tax filing, which makes all accounting tasks completely automated.
• The accrual method recognizes revenue and expenses on the day the transaction takes place, regardless of whether or not it’s been received or paid.
• Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism.

Step 1: Select your accounting method

• Once you have a customer record and start creating invoices, sending statements, and recording billable expenses, you can usually access historical activities within the record itself.
• Look for a bank that has a local branch as well as robust online banking.
• All businesses pay income tax unless the company is considered a partnership.
• Instead of recording a transaction when it occurs, the cash method stipulates a transaction should be recorded only when cash has been exchanged.
• A trial balance is prepared to test if the total debits equal total credits.