Basic accounting tips
Accounting is not just about keeping an account of cash flow and expenditure. It involves thorough knowledge of profits losses, incomes and expenditures. Without the basic knowledge of accounting it is impossible to know how much profit or loss the business is making. About 500 years ago a man called Fra Luca Pacioli noted that three things are needed for business first sufficient cash. Second being comfortable with the numbers side of business third a system of organizing financial information. Today this is called financial accounting.
Accounting is a part of every day life though we may accept it or not. To understand accounting we need to know the meaning and have an understanding of different terms used in accounting. Next into our daily business life. In other words every transaction made is to be entered into the business books. This includes all details of checks, deposits, sales invoices cash receipts and purchase orders. Though individually they may seem to be unimportant, when systematically organized they produce a picture of the health of the business.
To avoid double entry debits will always tally with credits. For every transaction, the books will have two entries, one for credit and the other for debit.
One must always follow the Accounting equation which states that Assets equal Liabilities plus Capital. As assets are debit balance accounts and both liabilities and capital are credit balance accounts.
The system of accounting is divided into categories and each category is divided into accounts. Categories are two types’ of balance sheet and profit and loss.
Every debit entry would mean an increase to some accounts and a reduction to other accounts.
Financial accounting is about delivering accurate financial statements and hence is considered a precise science. Managerial accounting provides information to managers. In this type the manager is responsible for, Accounts Receivable, Billing, Payroll, Accounts Payable audits of operational procedures and process. It remains indispensable for anyone involved in any type of business.
Some tips to protect businesses from losses would be beneficial. Managers have to ensure their company is protected from check fraud. To this end they can set up financial limits for checks with their bank. An inventory of bank checks must be maintained and kept secure in safes.
Financial statements should be used to review the costs and expenses. They should be used to guide you to find better suppliers, cut down expenses and increase profits. Set up a cost control system. Approvals for purchases above a certain amount should be made mandatory. Employees should send in descriptions of their needs and its importance. Constantly monitor collection procedures and outstanding invoices. It is important to write out payment terms in every invoice sent out on terms to which the clients agree, before a job is started. Insist that payment be made within 15-30 days of invoicing. Make sure there is a constant cash flow.
Tax rules change every year keep abreast of the changes through whatever source so that you don’t have to depend on your accountant. Create savings for yourself. Deduct a specified amount from every incoming cheque and use it fund your savings and retirement.
Ensure that the system of accounting you set up for yourself is as simple and easy as possible. Have a schedule for each of the accounting processes so that the same is followed at each stage. A systematic and streamlined accounting procedure will help in minimizing mistakes and missed accounts. Accounting helps considerably for any business to grow and increase profits.
