written by khatabook | December 6, 2022

Impressive Facts about Business Accounting and its Benefits

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Table of Content


Business accounting is the process of recording the day-to-day financial dealings of a business. The records are then used to prepare the financial statement of the business. Business accounting helps a business to keep track of its inventory, assets, liabilities, and other records. Working on this information the business heads take informed decisions towards expansion and growth of the company, protection of its assets, and securing new investments. There are three types of Business Accounting: Cost Accounting, Finance Accounting, Managerial Accounting.

To manage business accounting it is not necessary to hire an accountant for small businesses. However, you can hire an accountant if your budget permits you to do so. This will help in evaluating the accounting software, reviewing internal controls, receiving tax advice, and others. Accountants are usually needed when small businesses wish to get their financial statements reviewed or audited to get a bank loan, apply for grants, and others. 

Did you know that with the knowledge of accounting and bookkeeping, you can manage your small business accounts by yourself.

What is business accounting?

Be it start-ups, small or large businesses, they all go through teething trouble in their initial stages. Adopting effective accounting policies from the beginning is the best way to steer the business clear of problems arising from insufficient capital, debts, tax issues, and others. If a well-planned accounting system is put in place, it can benefit the business immensely. Small business accounting is exactly this process that analyses the financial status, finds the scope of progress, and helps solve the problems which arise from time to time. 

In small business accounting the financial data is collected, analysed, and financial statements are prepared to show the outflow and inflow of finances. A track is kept on all financial dealings like purchases, payments, salary, and obligations. 

New businesses can with the help of small business accounting realize the financial status and the worth of the business. They can take informed decisions for short-term and long terms goals. 

Also read: List of Best 24 Businesses in Hyderabad to Start in 2023

Business Accounting Basics

In order to operate the business smoothly one should be acquainted with the business accounting basics. It must not be ignored or the true financial status of the business will not be clear. This will hinder the process of steering the business on the path of growth. Some important principles and accounting terms are:

Accounts Receivable

Accounts Receivable is a creditable asset. It is the money which the customers are legally bound to pay to the company in return for the goods purchased or services received. 

Accounts Payable

Accounts payable is the amount the business / company owes to the vendors and creditors. These are liabilities since the company is legally obliged to pay. 

Assets

Everything with value owned by the company is an asset. Accounts receivable, inventory, equipment, furniture, bank accounts, and real estate are referred to as assets.

Liabilities

Any financial obligation like a debt, income tax, wages, accounts payable, loans, and others are termed as liabilities. 

Also Read: Know the Importance of Making a Business Plan - Why is a Business Plan Important?

Accrual Basis Accounting

Accrual basis accounting is an accounting method under which expenses and revenues are recorded as and when they occur. 

Cash Basis Accounting

It is the practice of recording revenue when cash has been received, and recording expenses when cash has been paid out. The cash basis is commonly used by individuals and small businesses as it involves the simplest accounting method. 

Double-entry Bookkeeping 

Under this bookkeeping method, two entries are made for each transaction. The two corresponding sides – listing debits and credits (which must be equal) are recorded.

Profit and Loss statement 

The Profit and loss statement or the income statement reflects expenses, earnings, and net profits for a specific period. 

Balance Sheet

The balance sheet is a financial document that gives a clear picture of a company’s financial status. It mentions the assets, liabilities, and shareholders’ equity in a business.

Also read: Know All About Business Letter Format Template, Example and Tips

Accounting reports for businesses 

Keeping records and preparing accounting reports is an important part of business accounting. The records need to be updated for the purpose of tax payments. These accurate records and reports can also be used in planning for future growth and expansion od the business. Following are some accounting reports that every business owner must create for a small business.

Profit and loss statement

A profit and loss statement or Income and expenditure statement is a very important record. It shows the amount of profit a business makes, the inflow of money, and how it is spent. Small businesses in order to be well informed should create and analyze this report on a regular basis. This will enable the management to find out what is working fine and what is inadequate in the business. 

Balance Sheet

The balance sheet provides a true picture of the business’s assets and liabilities. It shows information regarding bank accounts, investment accounts, and account receivables or the amount owed by customers for purchases made on credit. It also shows the value of the assets of the company and liabilities. 

Contingent Liabilities

These liabilities occur due to certain events like product warranties, unconcluded investigations, potential lawsuits, and others. 

Accounts payable aging reports

These reports assist the company to make payments to the vendors within the stipulated period. These reports keep you updated about the names of the vendors to whom you owe money and also the amount to be paid. By making payments within the due date the company can avoid late fees, and other associated costs, and avail of the early payment discount. This also enhances the company’s reliability.

Accounts receivable aging reports

Small business owners have to send invoices for all the work they do. Also, it must be ascertained that all payments are made and collected. The A/R aging reports ensure that all outstanding dues are cleared in time and there is no financial strain on the company.

Revenue by customer

The customer revenue report shows the amount of revenue the company made from each customer during a fixed period of time. This helps in recognising reliable sources of revenue, boost conversions, increase the return on investments, and others. 

Also Read: List of Top 10 Creative Small Business Ideas | Khatabook

Advantages of Business Accounting

Business accounting is beneficial in many ways for small, medium and large businesses. The advantages of business accounting are mentioned below:

  • Maintaining business records
  • Preparing financial statements
  • Comparing results
  • Decision making
  • Used as evidence in legal matters
  • Providing information to related parties
  • Used in taxation matters
  • Valuation of the business

Conclusion:

The most important accounting report for a business is the profit and loss statement or the income statement. This statement shows how much money the business is making as well as other vital data.

We hope this article has been of help in providing information about business accounting. It is a process of systematically recording, analyzing, interpreting, and preparing of financial reports. It is the process by which businesses keep track of their operations. Business accounting help businesses to know their financial standing and to take informed decisions. 

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium enterprises (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: How do I do business accounting by myself?

Ans:

Follow the below-mentioned steps:

Step 1 - Identify the transactions

Step 2 - Record the transactions in a Journal

Step 3 - Posting

Step 4 - Unadjusted Trial Balance

Step 5 - Worksheet

Step 6 - Adjust the Journal Entries

Step 7 - Financial Statements

Step 8 - Closing the Books

Q: What are the advantages of doing monthly business accounting?

Ans:

The advantages are:

  • Saves time
  • Provides regular profitability advice for the business
  • Better handling of finances
  • Tax liability is reduced
  • Helps in financial decision making

Q: What are the features of business accounting?

Ans:

 They are as follows:

  • Accounts receivable
  • Accounts payable
  • Payroll
  • Financial Reporting
  • Financial control

Q: Which is the best accounting system for small businesses?

Ans:

An accounting software that automates all financial transactions of a business is the most suitable for handling business accounts. As businesses grow and they require more complex finance solutions. They can go for advanced accounting software available in the market.

Q: What are the advantages of business accounting?

Ans:

The advantages are given below: 

  • Maintaining business records
  • Preparing financial statements
  • Comparing results
  • Decision making
  • Used as evidence in legal matters
  • Providing information to related parties
  • Used in taxation matters
  • Valuation of the business

Q: What are the duties of a business accountant?

Ans:

 The basic duties are:

  • Bookkeeping 
  • Preparing financial reposts
  • Filing tax returns

Q: What is business accounting?

Ans:

Business accounting is the process of recording the day-to-day financial dealings of a business. The records are then used to prepare the financial statement of the business. Business accounting helps a business to keep track of its inventory, assets, liabilities, and other records.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.