Accounting for Small business involves keeping a complete record of income and expenses and accurately extracting financial information from business transactions and financial transactions for small businesses.

This crucial task allows small business owners to effectively track and manage their finances, especially in the early days. In addition to providing information on the past and present performance of the business, accounting also facilitates tasks such as billing, tracking business expenses, tracking income and payroll to monitor the business income, business assets and the financial health of the company.

Completing accounting tasks can be a heavy and tedious job for a business owner. So it’s important and time to ask yourself the following question: How to do accounting for small business?

What is fondamental?

Already, it is fundamental to start by choosing an accounting software like Finotor from Finotor Innovation LTD, a worldwide accounting firm with accounting services (Neotoria) – free accounting software to try – used by small business owner, freelancers, new entrepreneurs or even larger companies for small business accounting.

And the CEO must therefore master the accounting basics. It is an imperative to better manage the company. He will have no other choice than to get a minimum of training if he wants to have a good control of his performance indicators, to adapt the business structure and act quickly accordingly.

Why have a business bank account for accounting of small business?

A first element that is especially the starting point of accounting for a small business accounting, is to have a separate business bank account and bank statements in the name of the company. Never use a personal bank account for a business activity.

It will also be necessary to link the income accounts with the incoming flows visible on the bank accounts.

Having a business bank account checks off several boxes:

• Be legally compliant: Depending on the legal structure of the business, it may be a legal requirement to have a separate business bank account.
• Showing a professional profile: Having a separate business bank account gives a certain professionalism to the company and allows the separation of business and personal finances.
• Allows for bookkeeping: A separate business bank account facilitates the management and monitoring of business finances. It simplifies bookkeeping and small business accounting, facilitates the preparation of financial statements and tax returns and reduces the risk of errors.
• Facilitates obtaining loans and credit: A business bank account shows that the business is legitimate and can help establish a credit history. This can make it easier to obtain loans and credit in the future.
• Builds legal protection: A separate business bank account for small businesses can provide some protection from liability. In the event of legal action, it may be easier to prove that the business is a separate entity from the owner(s).

Overall, opening a business bank account for for small businesses is a smart business practice that can help ensure compliance, enhance professionalism, simplify accounting, establish credit and provide protection.

Analyzing Financial Transactions for small businesses and growing businesses

Keeping track of a small business starts with analyzing the company’s financial statements to make sure they relate to the business entity. Therefore, choose an efficient accounting software like Finotor.

Personal loans, for example, are not included in the company’s accounting and financial accounts. Source documents are the basis for recording transactions and are prepared in the first step of the accounting process.

The analysis of a company’s financial transactions is important because it helps to understand the company’s financial position and identify trends and potential problems. It also helps to verify compliance with accounting and tax standards.

The analysis of financial transactions should consist of the following elements:

• Accounting records : this includes a list of the company’s financial transactions, recorded in the accounting journals. The accounting records should be organized by account category (assets, liabilities, equity, income, expenses) to allow for detailed analysis.
• Financial statements : these include the balance sheet, income statement and cash flow statement, which are generated from the accounting records. The financial statements provide an understanding of the company’s financial position at a given point in time and its evolution over time.
• Financial ratios : this includes key financial indicators, such as the liquidity ratio, profitability ratio, leverage ratio, etc. Financial ratios allow the company’s performance to be compared with that of other companies in the same industry.

An analysis of financial transactions is effective when it is based on accurate and up-to-date data. It should be done regularly to allow for an ongoing assessment of the company’s financial condition. It should also be performed by competent professionals experienced in accounting and financial analysis.

An effective financial transaction analysis should identify potential problems such as accounting errors, fraud or financial risks. It should also provide clear and accurate information about the company’s financial condition and its short- and long-term trends.

Finally, an effective financial transaction analysis should provide recommendations for improving the company’s financial performance.

Journal Entries

Business transactions of small businesses are recorded in a journal, or Books of Original Entry, using the double-entry bookkeeping system. Journal entries include two accounts – debit and credit. To streamline this process, accountants use special journals to record recurring transactions such as purchases, sales, and cash receipts. Transactions that cannot be included in special journals are recorded in the general journal.

The general ledger for a small business

The general ledger, also known as the Books of Final Entry, is a collection of accounts that show the changes made to each account based on past transactions, as well as the current balances of each account.

The general ledger is an accounting record that tracks and records all financial transactions made by a company during a given period. It is considered one of the most important documents in a company’s accounting system.

The general ledger is useful for several reasons:

• First, it tracks the changes in the company’s account balances, which is important for preparing accurate financial statements.
• Secondly, it facilitates the analysis of the company’s transactions, which can help detect errors, omissions or fraud.
• And the general ledger makes it possible to control the conformity of all accounting entries with the accounting rules in force. Finally, it facilitates the preparation of tax returns and other legal obligations.

Having an up-to-date ledger of accounting entries is essential for the financial management of the company. It provides reliable and up-to-date information on the company’s financial situation, facilitates decision-making and helps manage financial risks.

It can also help detect accounting errors and possible fraud, which can have serious consequences on the financial health of the company.

Unadjusted Trial Balance

The unadjusted trial balance is an accounting tool used to verify the accuracy of a company’s accounting records. It shows the balances of accounts receivable and payable at a given date, and ensures that the debit and credit totals are in balance.

The unadjusted trial balance is useful for several reasons :

• First and foremost, it allows you to quickly and efficiently verify the accuracy of your company’s accounting records by comparing the debit and credit totals.
• It also allows the detection of input or accounting errors that may have crept into the accounting entries.
• The unadjusted trial balance is a basic tool for preparing the company’s financial statements. It ensures that the accounting records are complete and accurate, which is essential to prepare accurate financial statements.
• It allows accounting errors to be detected early and corrected before they significantly affect the company’s financial position.

It is therefore important to have the unadjusted trial balance up to date with the accounting entries because it provides reliable and up-to-date financial information on the company’s situation. This facilitates financial decision-making and risk management.

Adjusted Trial Balance

At the end of the accounting period, adjusting entries are made to update the accounts summarized in the financial statements. Adjusting entries may include accrual of income and expenses, depreciation, allowances, deferrals, and prepayments.

An adjusted trial balance is then prepared to test if debits and credits match after adjusting entries are made, which is the final step before preparing financial statements.

The adjusted trial balance is an accounting tool that verifies the accuracy of a company’s accounting records but after the necessary adjustments have been made. It shows the balances of accounts receivable and payable as of a given date, after period-end adjustments have been taken into account.

Financial Statements

For the small business, the end products of the accounting system are the financial statements, including the income statement, statement of changes in equity, balance sheet, statement of cash flow, and notes.

Closing Entries

The final step of the accounting cycle is to close the temporary accounts, such as income, expense, and withdrawal accounts, to prepare the system for the next accounting cycle. The balance sheet accounts, also known as permanent accounts, remain open.

After the closing entries are made, a post-closing trial balance is prepared to test the equality of the debits and credits of real accounts only, as temporary accounts have been closed for the current accounting cycle.

How Do I Set up Accounting System for a Small Business?

To set up a small business accounting system, open a separate bank account for your business finances select an accounting software like Finotor. With a small business accounting application, you must also choose a method of recording financial transactions, such as cash basis or accrual basis accounting.

The Cash Basis and Accrual basis method for the accounting of small business

The cash basis method records income and expenses only when cash transactions occur. In contrast, most businesses choose the accrual basis accounting, which records income when a sale is made and expenses when incurred, regardless of cash transactions. A double-entry accounting system is used to record two entries for every transaction.

The Recording Transactions

As a small business owner, it is important to accurately record your business transactions in order to have a clear understanding of your finances. You have several options when it comes to recording transactions, including hiring an accountant, recording transactions by hand, or using accounting software.

Compile a Chart of Accounts

One important step in recording transactions is to compile a chart of accounts. This is a list of all the different types of business transactions that occur in your business. A chart of accounts is used to compile financial statements, review progress, and locate specific transactions. It is important to keep your chart of accounts updated regularly to include any new business transactions that may arise.

A chart of accounts is a document that lists the accounts used by a company to record its financial transactions. It is an important tool for bookkeeping and the preparation of financial statements.

Having a chart of accounts is essential for several reasons. First, it helps to organize the accounts used by the business in a consistent and systematic manner. This makes it easier to enter transactions and prepare financial statements. Second, it ensures that transactions are recorded in the correct accounts and that the financial statements accurately reflect the financial position of the business.

A chart of accounts should consist of a list of accounts, organized by category. The most common categories are assets, liabilities, equity, income and expenses. Each account should be accompanied by a detailed description of its use, nature and function.

A chart of accounts is effective when it is clearly defined, consistent, systematic and complete. It must be adapted to the needs of the company, its size, its sector of activity and the accounting standards in force. It should also be regularly updated to reflect changes in the company and changes in accounting standards.

An effective chart of accounts provides the company with a solid accounting framework to record its financial transactions accurately and consistently, and to produce reliable and transparent financial statements.

Determine your Payment Terms

In addition to compiling a chart of accounts, it is important to determine your payment terms for a small business. Depending on the nature of your business, you may decide to offer credit to customers. If you choose to offer credit, you will need to have a consistent system in place for creating and sending invoices to customers. This will help ensure that you receive payment in a timely manner and that your business’s cash flow remains healthy.

Overall, recording transactions accurately and consistently is crucial for small business owners. By taking the time to set up a solid accounting system, you can have a clear picture of your business’s finances and make informed decisions about the future of your business.

Determining the terms of payment is a step that gives credibility to the company because it provides a professional way of organizing the relationship between the customer and the supplier.

It allows a company to define the payment terms for its customers. Terms of payment include payment terms, payment terms, any late payment penalties, early payment discounts and other payment terms.

Payment terms should consist of the following elements:

• Payment terms: this refers to the length of time the customer has to pay the invoice, usually expressed as a number of days (e.g. 30 days).
• Payment methods: This refers to the different payment methods accepted by the company, such as bank transfers, checks or online payments.
• Late payment penalties: These are the fees or interest charged if the customer does not meet the agreed upon payment terms.
• Early payment discounts: This is a price reduction offered if the customer pays the invoice before the due date.
• Other payment terms: these may include specific terms related to the nature of the transaction or the business relationship between the company and the customer.

Effective payment terms are those that are tailored to the company’s needs and optimize its cash management. Payment terms must be balanced to provide sufficient benefits to customers to encourage prompt payment, while maintaining the company’s profitability.

Effective payment terms are also clear and transparent, making it easier to communicate with customers. They should be easily understandable and readily available on invoices and other business documents.

Finally, effective payment terms should be updated regularly to adapt to changes in the company and the market.

Do You Need an Accountant for a Small Business?

Running a small business requires a variety of skills, including financial management. An entrepreneur or business owner must have a minimum knowledge of business management and accounting. Otherwise it is possible and advisable to turn to certified accountants, accounting service and solutions like Finotor for small business.

When setting up your business, for most small business owners, an accountant can help you draw up a business plan and even advise you on areas of concern and opportunities.

With the help of solutions such as Finotor, a small business accounting software, can :

• Advise you on the entity structure of your business. This is an important point because it can have important consequences if not well organized.
• Help you to obtain the necessary authorizations for the exercise of your activity, such as operating licenses, sales tax authorizations and employment accounts
• Manage your business more efficiently with your Finotor accounting software. When you don’t want to use the services of an accountant on a regular basis Finotor allows you to have autonomy and therefore save on this expense.
• Deal with compliance issues and complex sales tax issues
• Manage complex labor costs, including payroll compliance issues that can sink even the most profitable businesses
• Help you meet the requirements of creditors or licensing bodies
• Maintain inventory records by purchase dates, stock numbers, purchase prices, sale dates and sale prices.

While some business owners prefer to do their own small business bookkeeping, others choose to hire an accountant to help them with financial planning, tax preparation and other financial tasks.

Whatever the accounting methods, one of the main benefits of hiring an accountant is that they can help you plan your business. This includes writing a business plan, advising on the entity structure of your business and obtaining necessary licenses and permits. They can also help you set up your accounting software and chart of accounts to ensure that your financial records are accurate.

Accountants can also help you with compliance and complex tax issues. Sales tax, employment tax and other regulatory requirements can be complex and time-consuming, but an accountant can handle these tasks on your behalf and help you avoid penalties and fines.

Another area where an accountant can provide valuable assistance is with labor costs. He or she can ensure that you are in compliance with wage and labor laws, and help you manage employee wages and benefits.

Small business owners who can’t afford to hire an accountant can opt to automate their accounting service with online accounting software like Finotor.

These applications, and Finotor in particular, the best accounting software for small businesses – a small business accounting software – , offer features such as invoicing, payments and payroll, and can help business owners keep accurate records and create basic business financial statements. Finotor – best accounting software – allows you to connect your banks and credit card collection tools for small businesses .

Because, most accounting software for small businesses does not provide all the features such as openbanking, OCR to digitize invoices and expense reports, do not integrate contextualized AI to analyze financial data.

In conclusion, whether you decide to hire an accountant or use accounting software, it is still important to have a system in place to manage your small business finances and secure the financial transactions. Good financial management supported by accounting software like Finotor, can help you make informed decisions and keep your business on the road to success.

Finotor’s powerful tools and features offer an easy, secure way to manage small business finances. With Finotor you can easily track expenses, generate invoices, view performance analytics and more. Plus, the software is cloud-based so it is accessible from anywhere with an internet connection and provides superior security for all your financial data.