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Small business accounting 101

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As a small business owner, you should be sure to maintain accurate and up-to-date accounting records. If your company’s financial data is current and error-free, it will help you keep track of your organization’s financial health, manage your cash flows, and file your taxes on time. 

In this article, we’ll cover the basics of small business accounting, define a few commonly used accounting terms, and provide tips to simplify your accounting process. Finally, we’ll describe how to choose the best small business bank account for your company. 

What does accounting look like for small businesses?

Let’s start with the fundamentals. It’s essential you record every business transaction carefully, which the right business checking account can help with. Remember, the accuracy of your accounting records depends on this. Additionally, you should file your receipts in one place to access them when needed. 

Be sure not to let the accounting work pile up; post all entries regularly. If you don’t, reconciling your finances could take significant effort. It’s far better to establish a comprehensive accounting system as soon as you start your company. 

There’s something else you should know about how to do accounting for a small business: Keep your personal and business finances separate. 

Commingling funds––or, using the same bank account for your business and personal transactions––is a mistake. If you follow this practice, it will be hard to determine whether your company is making a profit. You will also need to put extra effort into separating your personal and business transactions when tax season comes around. 

It makes much more sense to open a separate bank account for your business. When business owners think about how to do accounting for small business, they should consider this Rule #1.  

Accounting vs. bookkeeping

Some people use accounting and bookkeeping interchangeably, but that’s not correct. Although the two words are both related to your company’s financial records, they can mean different things.

 The differences between accounting and bookkeeping

BookkeepingAccounting
Recording of financial transactionsInterpretation of financial data
Carrying out routine tasks–payroll, receipts, invoicesAnalyzing costs
Bank reconciliationsFinancial forecasts and advice to the business owner
Preparing financial statements––income statement, balance sheet, statement of cash flowsMaking and adjusting entries at the end of the accounting period (recording unrecognized income or expenses)
Maintaining supporting documentsTax return–related work

While bookkeeping and accounting have some overlap, bookkeeping is more about recording financial data and accounting is more concerned with analyzing and interpreting it.

Basic accounting terms

Here’s a glossary of accounting terminology that non-accountants may find helpful:

Accounts payable

The amount you owe vendors and suppliers.

Accounts receivable

The amount customers owe your company.

Accrual accounting

An accounting method where you record payments or receipts when the transaction takes place (this could be before payment is made or received).

Cash accounting

An accounting method where receipts and expenses are recorded when cash is received or paid. 

Fixed asset

A long-term asset like machinery or land.

Current asset

An asset that will be converted into cash within a year, i.e.,  inventory.

Liabilities

Debts or obligations of the company.

Balance sheet

A financial statement that provides details about a business’ assets, liabilities, and shareholder equity on a specific date.

Income statement

A financial statement that provides details about a company’s revenues and expenses for a specific period.

Cash flow statement

A financial statement that provides details about a business’ cash inflows and outflows for a specific period.

Shareholder equity 

Total assets minus total liabilities.

(This is also known as the accounting equation or balance sheet equation).

Revenues

The value of the goods and services your company has sold, including interest, dividend, and rent.

Tips for small business accounting

Here are five tips you may find useful for small business accounting:

Tip #1: Use accounting software

Consider using a business accounting software tool like QuickBooks. The software package has been designed especially for small businesses. It will help you track sales, monitor expenses, and provide various financial reports that allow you to keep a tab on business performance.

Tip #2: Hire an accountant

Consider hiring an accountant or a part-timer and set aside time every day or every few days to understand your company’s accounting processes. If you do this, you’ll better appreciate the financial implications of your business decisions.

Tip #3: Prepare for tax season early

Filing income taxes can be a headache. But if you start your preparations well in advance and know what you need to do, you can simplify your tax filing. 

Tip #4: Use tax deductions strategically

Small businesses can deduct several types of expenses when calculating their taxes. Ask your accountant whether you should opt for itemized deductions or a standard deduction when filing your return. Making the right choice can help you reduce the tax you need to pay. This tip can save you a lot of money. 

Tip #5: Give your accountant what they need

Share access to your business checking account with your accountant. When you do this, your accountant can download your bank statements in digital format in real-time. Of course, you must be careful not to share your password. Provide accountants with their own login and credentials and ensure they have view-only rights.

How to make sure you get the best small business bank account

Be sure to do your research when selecting a business bank account for your company. These are some of the features you should look for when choosing an account:

No monthly fees

Look out for overdraft and monthly maintenance fees. These charges may be individually small, but they could add up to a substantial sum over months and years. So, read the fine print before choosing a business checking account.

No minimum balance requirements

Ensure that the bank account doesn’t require a minimum balance. If it does, you’ll needlessly lock up a portion of your funds, and you could face fees if your balance dips below the requirement.

Interest rate

Check if the account provides the opportunity to earn interest on your balance. A higher rate means your cash can work harder for you, and you may be able to maintain one account for operating balances instead of separating money between checking and savings.

Budgeting tools

See if the account offers sub-accounts. This feature will make it simpler for you to manage your cash flow by keeping funds separate for payroll, taxes, emergencies, and more. Additionally, you’ll be able to track your expenses more closely and control which sub-accounts vendors are able to bill. 

Built-in bill pay platform

A good business checking account should provide you with the flexibility to pay bills directly from your account or by credit card. You should also be able to decide how vendors get paid: by ACH, check, or wire transfers.

Connection to accounting software

There’s another crucial feature that your business bank account must have. It should sync directly with your online accounting software. This will help make your small business accounting seamless, streamlined, and error-free.

Disclaimer

This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.

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Disclaimer

This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.