Accounting for small businesses entails keeping a detailed record of all revenue and spending and properly extracting financial data from business activities. One of the best things you can do for your small business is get professional help with accounting. If you need help, contact a tax and accounting firm in Palm Beach Gardens, FL.
Accounting is an essential task that assists small business owners in properly tracking and managing their money, especially in the early stages. Accounting for small businesses not only keeps you informed of your company’s performance in the past and now, but it also helps you generate invoices and complete payroll.
Analyzing financial transactions
Accounting begins with the analysis of financial transactions and their inclusion into the accounting system for the business entity. Personal loans, for example, are not listed in the corporate records.
The production of source papers is the initial stage in the accounting process. A source document, often a business document, is the foundation for registering a transaction.
Journal entries
Using the double-entry accounting technique, business transactions are documented in chronological sequence in a journal, also known as Books of Original Entry. The journal entries are divided into two accounts: debit and credit.
Accountants utilize a dedicated diary to record regular transactions such as sales, purchases, cash receipts, etc. Transactions that are ineligible for inclusion in the special journals are reported in the general journal.
Ledger
A general ledger is a compilation of accounts that displays the modifications made to each individually based on prior transactions as well as the current balances per account. It is often referred to as the Books of Final Entry.
Unadjusted trial balance
A trial balance is created to determine whether the total debits equal the entire credits. The ledger accounts are retrieved and organized in a report. The debit and credit column balances should be equal.
If not, the trial balance contains inaccuracies that must be identified and corrected using corrective entries. It is vital to remember that certain mistakes may persist even though the debits match the credits.
Adjusting entries
The accountant must produce adjusting entries after the accounting period to amend the accounts summarized in the financial statements. Income earned but not reported in the books, for example
Adjustments are performed for revenue and cost accrual, allowances, depreciation, deferrals, and prepayments.
Adjusted trial balance
After the adjusting inputs are completed, an adjusted trial balance must be created. This is done to see if the debits and credits match once the correcting entries have been made. This is the final stage before preparing the company’s financial statements.
