Accounting or bookkeeping is the act of recording, tracking and managing financial transactions that occur concerning individuals, companies or small businesses. Accounting and bookkeeping are mostly interchangeable as they both deal with the same accounting principles, financial statements and accounting systems.
The thought of bookkeeping can often appear painful and discomforting; however, this beginner’s guide will give a rundown of the standard key terms, phrases and responsibilities of accountants without exploring the intricacies of each area.
The majority of accounting/bookkeeping is done automatically through accounting software. However, some concepts are still required to be taught so that individuals and particularly small business owners do not have to spend an exuberant amount of money outsourcing to others. Check out this article on how to become an accountant in NZ.
Understanding what you need to know
The first step to this beginner’s guide is to consider the following questions:
In other words, what am I looking to get out of a beginners guide to accounting that I can implement in my own life or small business operation? I think before diving into a hefty long course, or accounting degree is it necessary to see the value of learning specific accounting skills.
Furthermore, how you can apply these skills in real-life scenarios? For example, you wouldn’t learn about small business accounting or e-commerce if the majority of your transactions occur on a cash basis. There are many different ways accounting can be utilised by small companies to enhance business and help achieve their financial goals if used correctly.
Short online courses such as a Certificate in Accounting or an Accounts Administration & Payroll Certificate plus Xero and MYOB are great starting points for businesses wanting to gain knowledge of accounting software, terms and systems to be more profitable.
Accounting for small businesses
If you work as a sole proprietor or freelancer, there are several terms or phrases that you would regularly hear accountants mention such as double-entry accounting or accrual accounting income statement.
When considering companies, you must also find the appropriate accounting systems that join the two aspects together. This is because some businesses work better with different accounting practices that ensure money is available and accessible at all times.
A few accounting decisions to consider are explained below:
Single vs Double-entry
Single entry is one entry, either positive or negative, used for low volume businesses with not many customers daily. Double-entry uses a “debit” and a “credit” to track income and expenses. It is used to prepare for budgets and financial statements more easily.
Cash or Accrual
Cash accounting records transactions when they usually occur at the point of sale. Accrual accounting is a recording of the financial transactions before or after it happens. An example would be rent that has not yet been paid but is expected to be paid in the next month.
Basic Accounts and Financial Statements
Account types help prepare financial statements that can be used for business planning and strategy. These are the basic accounts and financial statements that should be known to accountants and bookkeepers.
Schedule or record of Accounting Books
Accounting is primarily a routine task where a transaction needs to be recorded and accounted for when they occur. Cash flow is essential for the operations of businesses and can assist in the scheduling of stock inflow/outflow.
Without the proper invoicing or the recording of financial statements, companies can often encounter cash flow difficulties which can be a determinant to business operations.
Furthermore, keeping a schedule of payments or a bank statement from personal bank accounts such as credit card or mortgage payments can help individuals keep track of their finances which can also assist in tax returns.
Best accounting software to use
In 2021, small businesses can use accounting software to efficiently and effectively keep a record of all financial transactions that occur. Such accounting software includes Xero, Quickbooks online and even amazon accountant/bookkeeper.
In these cases, accountant and bookkeeper software work in different ways, so it is crucial to research what type of software and for what purpose you require this software. There are accounting software programs that offer a free trial period. Therefore it may be useful to try different accounting software to see which one matches your particular needs best.
Accounting software can be helpful instead of using excel or general ledgers to record financial transactions that occur; however; it may not always be the case. The general rule should be to find the quickest and most efficient way to record, manage and maintain financial records for you or your small business.
Whether you are operating a sole proprietor, freelancer or small business and want to know more about business bookkeeping/accounting, understanding the basics can assist you in better managing your finances. With basic accounting knowledge, you can create a more efficient, cost-effective way to gain the upper hand in your business operations for a prolonged period of time.
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