If you’re thinking about starting a small business, you should know the basics about common accounting procedures.
With the hundreds of other business decisions to make, it’s important to make your bookkeeping choice early.
If you’re going to keep your accounting in-house, there are a few bookkeeping options you can use.
How should a business decide which accounting style to use?
Your accounting style will vary based on the type of business you own.
If you have a very simple business (with no inventory or any equipment, you work from home, and don’t venture too frequently into the realm of cash transactions), you should be able to use single-entry bookkeeping.
Single-entry bookkeeping means that you enter each transaction only once. If a customer pays you a sum, you enter that sum in your asset column only.
Double-entry bookkeeping is a bit more complex.
Most accounting software is set up as double-entry bookkeeping. In this method, you’ll record two entries for each transaction: a debit (Dr) and a credit (Cr).
If your business will have a physical space (or online web presence), sales, inventory and equipment, you’ll need to go with double-entry bookkeeping.
What is the easiest accounting procedure for a small business to set up and use?
There are three main options for small businesses to set up their own accounting.
If you have a good grasp of general accounting procedures and a very simple business, you may be able to use a spreadsheet system for bookkeeping.
While it’s definitely the cheapest option, it’s also very easy to make mistakes creating your own general ledger inside spreadsheets.
As an alternative, there are a variety of bookkeeping software programs out there: Quickbooks, Wave, Odoo, Xero, FreshBooks and more.
The desktop options (like Quickbooks) have a high upfront cost — but once you purchase them once, they’re yours.
Or, if you purchase a cloud-based program (like Quickbooks Online, Wave or FreshBooks), you pay a smaller annual or monthly fee.
If you feel like accounting isn’t your forte, or you just want to outsource it — hiring a CPA firm or accounting team can help alleviate stress and ensure that your books will always balance.
Making the right choice for your business
Whatever method you choose, make sure you enter all credits and debits at least once a week. Plan to balance your books monthly, or at the very least, once a quarter.
If you don’t have an accurate grasp on your cash flow, you’ll regret it later.
Whether it’s regarding questions about expansion or during an audit, keeping your books up to date gives you the best tools available to predict the success of your business.
Ask Morgan & Associates for expert bookkeeping advice for your small business.