Setting up the Right Accounting System for your Business.
Business needs a good Business Accounting System to increase their
Business' chance for success. When Starting a Business, the first focus should
be on building systems and processes, that allow us to accurately capture
as much data as possible, from the setup process; It is important to remember
that this process helps us to learn about our businesses and enhances our
decision making, as well as giving us a better idea, of what is going on in our
This Month, we will be looking at the processes of setting up the right
business accounting system for our Organization. Below are some points to
consider, when setting up your Business Accounting System:
Separate Books: When Starting a Business, the first thing to
do, is to set up a Separate Bank Account for your Business, as well as a
Business Debit/Credit Card. This helps to properly distinguish your
personal expenses from your Business expenses, and enhances accurate tax
deductions during tax periods. In addition, IRS Auditors are always quick
to disallow expenses, when your Business Expenses are mingled with
- Types of
Business Entity: It is important to choose the right legal and tax
entity for your Business. For Tax Purposes, Sole Proprietors use a 1040
Schedule C to report their activity, while other Business entities flow
their profits into their individual tax return, through a Schedule K-1.
The C-Corporations require separate tax returns, without a flow- through
of the profits into the personal tax returns. Every Business Owner needs
to think carefully about getting the right business entity, so that you
will not have unpleasant surprises during tax periods.
versus Accrual: These are the two approved methods of Accounting.
The Cash Method is based on recording payments, immediately they are made,
and revenues are recorded, when they are received. The Accrual Method is
the method , whereby transactions are reported , when there is an
established obligation. For a transaction to occur, this means that Income
should be recognized before its receipt, and expenses are charged, before
the Bill Payments. The Accrual Method of Accounting is actually the
preferred method for most Businesses, especially for Tax Purposes.
Businesses recognize the need to organize their business
transactions into accounting groups. These Groups use their own reporting
system, known as " Sub-Ledgers", and they fall into these
Receivables - Money Others Owe You.
Payables - Money, that you owe your Vendors
- Sales -
Revenue & Money, that you receive
Assets - Assets & Properties that your Business Owns.
- Goods & Materials that your Business holds for the purpose of
- Bookkeeping Setup: Maintaining the Books is the most important part of your Business Account Setup, and is required by Law. Your Bookkeeping System incorporates all the above mentioned points, to create usable information, which enables you to see how your Business is doing and make wise decisions. There are various Bookkeeping Tools, to help you maintain your accounting records. Examples are Microsoft Excel, QuickBooks, Sage ,Xero; but the most preferred tool is QuickBooks, because it syncs with your Bank account and updates your records regularly, and this helps ,you stay on top of your account.
You need to spend time in setting up the
right Accounting system for your Business, if you want your Business,
to be successful. We know that it is easy to get caught up in all the
administrative tasks and will suggest that you ask for help
Do you have the right Accounting System for your Business? It's not too late to
set up a good system for you, why don't you give us a Call to help you out.
Remember: You are increasing your Business chance for Success, when you make
your Account Setup, a priority.