In every part of business, accounting is needed. Deducting costs from profits is not the only thing that needed to be accounted for. Movements of money such as cash, invoices, purchases, debts and so on are needed to be recorded and accounted for. Accounting provides information and status about your company to make final decisions. You need to trace and understand how money flows so that mistakes will not come.
CASH METHOD VS. ACCRUAL METHOD
Cash method is used for starters (those businesses whose revenue is below $ 5,000,000). Revenues and expenses are recorded at the time they are paid. For newly established business, cash method is the one for you. However, there are a few disadvantages of the cash method.
- Inaccuracy of business growth
- Large cash but slow sales
- Count what you’ve been paid
Many businesses have chosen cash method due to its simplicity in recording. You only keep track of cash in and cash out.
GAAP (Generally Accepted Accounting Principles) require business to use the accrual basis. Unlike cash method, the timing of the cash doesn’t matter. In an accumulated time is when the accrual is used. Accrual method provides accurate reports within the time period (only when occurred and not as received or paid). This is only used when revenue is above $ 5,000,000. Financial statements, except for cash flow statements, are prepared on the accrual basis of accounting.
IRS (Internal Revenue Service) allows small businesses to choose between cash method or accrual method.
ACCOUNTING INFORMATION SYSTEM
Accounting Information System is used by decision makers for its tracking of records, personnel and procedures. The system is generally a computer-based method for collecting, storing and processing financial and accounting data.
As the term itself, this is when you use ledgers, subsidiaries and journals. Small or start up businesses use this information system.
This can be either be using a software or spreadsheets. In the software part, database systems such as Oracle, SAP and QuickBooks capture and store data (financial and non-financial). There are also systems such as order management that can now provide the necessities you need in accounting, inventory, status and many more.
As for the spreadsheets part, human labor is still needed especially when it comes to entries and names. This can be used for small businesses
Taxes to consider
While doing business, it is still important to pay taxes. Bear in mind that taxes insures our safety and the environments’ maintenance. Here are some taxes to consider:
- Count what you’ve been paid
- Sales Tax
- Income Tax
- Property Tax
- Excise Tax
- Self-employment tax
- Gross Receipts Tax
HOW TO STAY ON BUSINESS
Stay on track. Don’t lose sight of your goal. Determination can lead you towards success.
Manage cash flows
Keep an eye on your transactions. Chances of failing are anywhere.
Prioritize your activities
Too many things to do can cause a breakdown. Manage your time so that you won’t break. People who do too much can affect their well-being and exhaustion.