Small Business Accounting 101: Everything You Need to Know About Accounting for Small Businesses
As technology advances, accounting software has become more important than ever in streamlining accounting processes. especially when it comes to small business bookkeeping.
- By Jordan Salas
- May 8, 2023
- Accounting
If you’re a small business owner, accounting is one of the most important aspects of running your business.
From tracking expenses to preparing financial statements, accounting is essential for making sound business decisions.
However, accounting can also be complex and time-consuming.
Fortunately, there are several accounting programs available that can simplify the accounting process.
In this article, we’ll provide an overview of small business accounting 101.
We’ll cover everything from choosing the right accounting software to tracking expenses and preparing financial statements.
By the end of this article, you’ll have a better understanding of how to manage your small business finances.
What's in the article
Best accounting software for small businesses
When it comes to accounting software, small business owners have a lot of options to choose from. However, not all accounting programs are created equal.
Some accounting programs are geared towards larger businesses, while other accounting software is more appropriate for small businesses.
There are a few things to consider when choosing accounting programs for a small business.
First, the accounting software should be easy to use and understand.
Second, the accounting program should be able to handle multiple users.
Third, the accounting software should offer a good price point.
There are much different accounting
If you own a small business, then you know that there are many different accounting methods out there.
With so many options, it can be difficult to decide which one is right for your business.
However, small business accounting 101 can help you make the right decision.
Small business accounting refers to the process of tracking and managing your company’s financial transactions.
This includes recording income and expenses, as well as payments and receivables.
There are many different software programs and apps available that can help you with small business accounting.
In addition, many online courses and resources can help you learn more about this important topic.
By taking some time to learn about small business accounting, you can ensure that your company is on the right track financially.
Choose your accounting method
As small business owners, one of the first things you’ll need to do is choose an accounting method.
This may seem like a daunting task, but it doesn’t have to be.
By understanding the basics of small business accounting, you can make an informed decision about which method is right for your business.
The two most common accounting methods are cash-basis and accrual-basis.
Cash-basis accounting
With cash-basis accounting, you only record transactions when they are paid for.
This method is simple and easy to understand, but it doesn’t give you a true picture of your business’s financial health.
Accrual accounting, on the other hand, records transactions when they occur, regardless of when they are paid for.
This method is more complex, but it provides a more accurate picture of your business’s financial situation.
Ultimately, the decision of which accounting method to use is up to you.
By taking the time to understand the basics of small business accounting, you can make sure that you choose the method that is right for your business.
Accounting services for small businesses
When choosing a bookkeeper or accounting firm, it is important to consider your budget, your desired level of service, and the size of your business.
Do I need a business bank account?
You may be wondering if you need a business bank account for small business accounting 101.
The answer is that it depends on the type of business you have and the accounting system you use.
If you are a sole proprietor, you can use your bank account for business transactions or you can use a business credit card.
However, if you have a partnership or corporation, you will need to open a business bank account.
This is because business bank accounts have features that personal accounts do not, such as the ability to track expenses and income separately.
In addition, having this account can make it easier to get a loan or line of credit from a lender.
Ultimately, the decision of whether or not to open this kind of account is up to you, but it is something you should consider if you want to keep your business finances separate from your finances.
How do I set up Payroll?
Payroll is a necessary part of running a business, but it can be daunting to set up if you’ve never done it before.
Luckily, there are a few simple steps you can follow to get started.
First, you’ll need to determine how often you’ll be paying your employees.
This will help you to develop a cash flow plan and ensure that you have enough money in your business checking account to cover payroll.
Next, you’ll need to fill out some paperwork with the government to obtain a payroll tax ID number.
Once you have this number, you can begin setting up payroll deductions for your employees.
Finally, you’ll need to work with an accounts payable service to process your payroll checks. By following these steps, you can easily set up payroll for your small business.
Separate business and personal expenses
It is important to keep business and personal expenses separate.
This will help you to stay organized and to keep track of business income and expenses.
When you have separate business and personal accounts, it is easier to see which transactions are business related.
This will help you to keep track of business expenses and to deduct them from your taxes.
Additionally, keeping business and personal transactions separate will help you to manage your cash flow.
You will be able to see how much money is coming in from your business and how much is going out in business expenses.
This will allow you to better manage your finances and make sure that your business is profitable.
How do I track my business expenses?
If you’re in business, it’s important to keep track of your expenses.
This will help you stay on top of your finances and ensure that you’re not overspending.
There are a few different ways to track business expenses.
One way is to keep track of all business transactions in a ledger.
This can be done manually or using the software.
You’ll need to record the date, amount, and what the transaction was for.
This method is time-consuming, but it will give you a clear picture of where your money is going.
Use financial statements
Another way to track business expenses is to use financial statements.
These are typically prepared by accountants, but you can also create them yourself.
Financial statements show you how much money you’ve spent in various categories, such as office supplies or travel.
This can help identify areas where you may be able to cut back on expenses.
Sales tax is another expense that business owners need to be aware of.
Depending on where your business is located, you may be required to pay sales tax on certain purchases.
This can add up, so it’s important to keep track of your sales tax expenses.
What are my tax obligations as a small business?
There are many tax obligations that small businesses have to comply with.
Depending on the structure of your business, you will have to file different tax returns.
For example, if you are a sole proprietor, you will have to file a personal income tax return, and if you are a corporation, you will have to file a corporate tax return.
In addition, you will also have to pay GST/HST on your sales, as well as payroll taxes for your employees.
Keeping track of all these different obligations can be daunting, but there are many resources available to help small businesses comply with their tax obligations.
The Canada Revenue Agency website is a good place to start, and most accounting software programs can also help with filing tax returns and calculating taxes owed.
By staying on top of your tax obligations, you can help ensure that your small business stays compliant and avoid any penalties.
Bookkeeping software for small businesses
When it comes to bookkeeping software, small businesses have a lot of options to choose from so we going to help you to choose from The 8 Best Bookkeeping Software for Small Businesses.
Understand key accounting terms
As small business owners, it’s important to have a working knowledge of key accounting terms.
Here are four essential concepts that every business owner should understand:
1. Accounts receivable:
This is the money that is owed to your business by its customers. Accounts receivable are usually tracked on a balance sheet.
2. Accounts payable:
Maintaining a strong accounts payable department is essential for any business, as it helps to ensure that bills are paid promptly and that vendors are kept happy.
An accounts payable department typically consists of a team of bookkeepers or accountants who track incoming invoices and make sure that they are paid on time.
In some cases, the accounts payable department may also be responsible for negotiating payment terms with vendors, issuing payments, and keeping track of spending.
By staying on top of accounts payable, businesses can avoid late fees, interest charges, and damaged relationships with vendors.
3. Inventory:
This refers to the raw materials, finished goods, and work-in-progress that your business has on hand. Inventory is usually tracked on a balance sheet as well.
4. Depreciation:
This is an accounting method used to slowly “write off” the cost of capital assets, such as buildings or machinery, over time. Depreciation is typically recorded on the income statement.
By understanding these four key accounting terms, you’ll be well on your way to managing your business finances like a pro!
How do I develop a bookkeeping system?
A bookkeeping system is a vital part of any business, large or small.
It allows you to keep track of your finances, see where your money is going, and make sure that your books are in order.
There are a few accounting basics that you need to understand before you can develop a bookkeeping system.
First, you need to know what accounting is and how it works.
This will give you a foundation on which to build your system.
Next, you need to decide what type of bookkeeping system you want to use.
There are many different types of systems out there, so it is important to choose one that will fit your needs.
Finally, you need to implement your system.
This means setting up your accounting software, entering your transactions, and making sure that everything is running smoothly.
With a little effort, you can develop a bookkeeping system that will help you keep track of your finances and run your business more efficiently.
How do I register my business?
Registering your business is an important step in ensuring its legality and protecting your assets.
The first step is to choose a business structure, such as a sole proprietorship, partnership, or corporation.
Then, you’ll need to obtain any necessary licenses and permits from your state or local government.
Once you have all the required paperwork in order, you can open business accounts with your chosen financial institution.
This will help you to keep your personal and business finances separate, making it easier to track expenses and prepare tax returns.
By taking the time to register your business properly, you can give yourself a solid foundation for success.
Start your business with Shopify
Starting your own business can be a daunting task, but with Shopify, you can get up and running quickly and easily.
Shopify is a powerful eCommerce platform that provides everything you need to create a professional online store.
With Shopify, you can choose from a wide range of beautiful themes to create a unique online presence for your business.
You’ll also have access to all the tools and resources you need to run your business smoothly.
Plus, Shopify makes it easy to accept payments and manage to ship.
So if you’re looking to start your own business, there’s no better time than now to get started with Shopify.
Small business accounting – Pros and Cons
Many small businesses choose to outsource their accounting needs.
This can be a great way to save time and money, but it’s important to understand the pros and cons of outsourcing before making a decision.
Frees up time
One of the biggest advantages of outsourcing is that it frees up time for business owners to focus on other aspects of their business.
Accounting can be time-consuming, so outsourcing allows business owners to devote more time to other tasks.
In addition, outsourcing can also save money in the long run.
Hiring a full-time accountant can be expensive, but many accounting firms offer affordable rates for small businesses.
However, there are some disadvantages to outsourcing as well.
One potential downside is that you may not have as much control over your finances if you outsource your accounting.
In addition, it’s important to find a reputable and reliable accounting firm to avoid any issues down the road.
Overall, outsourcing your accounting needs can be a great way to save time and money, but it’s important to weigh all the pros and cons before making a decision.
Overview: What is small business accounting?
Small business accounting is the process of tracking, recording, and managing finances for a small business.
This includes recording income and expenses, preparing financial statements, and paying taxes.
Small business accounting is important because it provides information that can be used to make decisions about how to grow and operate the business.
It can also help owners track progress, identify areas of improvement, and monitor cash flow.
Additionally, small business accounting can help owners plan for the future by creating budgets and forecasting trends.
While small business accounting may seem like a daunting task, there are many software programs and online resources that can make the process easier.
With a little time and effort, any small business owner can learn the basics of small business accounting and use this information to improve their business.
