Accounting 101

Every small business must maintain accurate records of its income, expenses, receipts, invoices, and bank statements. Maintaining accurate records enables you to monitor the financial performance of your company, spot trends, and come to wise judgments. Here is an overview of basic accounting principles.

Assets: Your company’s possessions that have value are referred to as assets. Your bank account balance, the amount of money you have in accounts receivable (what your clients owe you), your merchandise, computers, and furnishings are all examples of assets.

Liabilities: Anything owed by your business is a liability. Accounts payable balance (what you owe vendors) and any loans or notes the company owes are examples of liabilities.


Keep a watch on your highest cost expenses. The biggest expense for the majority of small firms is labor, and inventory is frequently another. Many small firms hire contractors who charge by the hour to complete work on their behalf in order to lower labor costs. This may be less expensive because the contractors do not need to work 40 hours per week to finish your project and they are not entitled to benefits.

Leaders can better budget and discover strategies to manage costs by using time-tracking software to determine how much particular jobs are costing the company.

Transportation. Keep track of the dates, locations, and reasons you drove any vehicle for business activity, as well as any rental or fuel receipts (HMRC permits certain mileage allowance relief). Other forms of transportation, including bus, train, and taxi fares, are also eligible for reimbursement.

Rent, utilities, phone and supplies. Rent, bills, and other office expenses may qualify as business expenses for tax purposes. If you work from home, the firm might be held responsible for a portion of your rent and utility costs.

No matter how little the purchase, keep all of your receipts, and make sure they are legible. Debit and credit card receipts are among the receipts you must maintain.

Key Financial Statements

Financial reports can be used to assess corporate performance. These three important financial statements are created by tracking expenses and income.

  • Income statements aid in calculating a company’s profit or loss.
  • A balance sheet provides a picture of a company’s financial situation at a specific time by listing its assets, liabilities, and shareholders’ equity.

The cash flow statement displays the amount of cash on hand as well as the amount of money that has flowed into and out of the business during a specific time period.

But when paired with the balance sheet, the cash flow statement can demonstrate if a business has enough cash on hand to cover its immediate obligations. Banks and investors demand all three declarations in order to obtain financing or investment.

An accountant creates the cash statement, income statement, and balance sheet using the corrected trial balance. These display the company’s cash flow, results, and financial situation.


Maintain the books in order. Owners and staff can’t get a good view of the business’s financial situation without keeping the accounts up to date. One technique to make sure the books are constantly up to date is to automate the receipt and invoice capture process.

Connecting bank accounts with your accounting software is a further crucial step. Businesses can download and manually input credit card and bank statements, but some accounting systems provide a plug-in that can automatically extract data from your bank account and get daily bank transactions and statement files.

Regular bank account reconciliation guarantees that your financial records and bank statements are in agreement. It makes sure that all transactions are accurately documented and aids in finding any discrepancies.

If bookkeeping is not your strongest skill, think about hiring an accountant or bookkeeping service. Alternatively, have someone internally store all receipts and invoices for commercial activities and outsource it to someone who can finish your records once a month.

Check your inventory levels. If not handled effectively, inventory can be a significant source of cash leakage. Put a structure in place to guarantee that you are not holding onto extra goods, which wastes money, and that each penny is utilized effectively.

Income tax preparation

It is simpler and more time efficient to handle your accounts with accounting software. It enables you to automate processes like billing and bookkeeping and provide current financial information about your company.

Consult a tax preparation specialist for advice. It’s hardly surprising that around two thirds of small businesses employ an outside tax expert or accountant to handle their taxes since one in three claim to spend more than 40 hours year on federal taxes. For a sole owner, there are even more advantages because you can deduct the expense of employing a tax professional to prepare your company’s tax return.

When it comes time to file your business taxes with the IRS, accountants and tax preparers most frequently ask for a profit and loss (P&L) statement. However, if you apply for funding, you can also be required to share it with lenders. Your P&L statement, which lists your sales, costs, cost of goods sold, gross margin, profit, and other important metrics over a given time period (such as monthly, quarterly, or yearly), provides an overview of your company’s profitability.

Accounting Basics for Small Business

business accounting
Small-business accounting is an array of financial procedures for calculating, handling, and communicating a company’s financial information. Payroll, taxes, management, purchases, and inventory are a few of these tasks.

Develop a bookkeeping system

Every business has to decide how to handle the bookkeeping. The choices are hiring someone to do it for you or learning to do it yourself. It is possible to learn how to manage your own books, and doing it yourself has a number of significant benefits.

You can find a bookkeeping solution that will meet your company’s demands thanks to the abundance of paid and free accounting software solutions available today. Additionally, small business owners must choose between using accrual or cash accounting.

There are four major types of expenses you should track

Meals and entertainment – There will be times you’ll discuss business over lunch or dinner, but to be able to claim as an expense, it has to be recorded. Details should include who the meal was with, what was discussed, and keep the receipt.

Travel – The IRS scrutinizes travel expenses to be sure they weren’t really for personal, so keep all receipts and good records.

Vehicle expenses – there are 2 methods that can be used to expense the business use of a car. One is the actual mileage for every time the vehicle was used for business and using the mileage rate the IRS allows. The other is recording mileage at the beginning and end of the year, what the business mileage was, and deducting the percentage of business to overall mileage in all car-related expenses. This includes maintenance, gas, loan interest, lease costs, etc.

Home office expense – if you work out of your home, you can possibly take a deduction for the percentage of your home’s square footage that is used. The space has to be used only for business and nothing else. You can deduct that percent of electric, mortgage, and other home expenses. It’s best to check with your accountant on how to claim a home office expense as the IRS keeps a close eye on this category.

Open a small-business bank account

Opening a bank account for business that is separate from your personal accounts provides a barrier that protects your personal finances in case the business is audited, goes bankrupt, or is sued in court. Having good records for the business and proof of business income will help to secure loans or funding in the future.


credit cards

Open a checking account first, then any savings accounts that can help in planning your taxes and organizing your cash flow. A savings account is a good way to set aside a portion of each payment to cover your self-employed tax withholding. A quarter of your salary should be set aside as a general rule, while estimates for high earners may be closer to one-third.

A separate bank account for business purposes is mandated by law for corporations, partnerships, and LLCs (Florida, Texas, and California LLCs have different guidelines). Having a separate account is not legally required for sole proprietors, although it is strongly advised.

New business owners should then apply for a credit card in the name of the business to start establishing credit, and to keep all business expenditures separate from personal, especially for LLCs and corporations. A credit card is good for financing large purchases or when you may need extra funding.

Tax obligations

How you choose to structure your business will determine what type of tax return you will need to file. If you are a sole proprietor and reporting as self-employed, all business information will go on your personal tax return, using a Schedule C. Otherwise you will need to file a separate business form for corporations and LLCs, both of which have their own EIN number and are taxed differently.

For peace of mind and to be sure you aren’t doing something that could bring about an audit, it’s best to meet with an accountant and go over all your particular details. Doing so can save you a lot of time, money, and headaches later.

Evolutionary Changes in the World of Accounting

A certified public accountant wears many different hats during a typical day. A CPA performs a large number of different functions, which are not completely understood by many. One can find certified public accountants in many different sectors of the workforce.


The role of a CPA is vast. Individuals who decide to specialize in auditing provide the assurance of financial statements and their integrity. When in the position of an auditor, a CPA needs to guarantee that financial statements are free of any mistakes or misrepresentation. Additionally, certified public accountants cannot perform an audit within a company where they may have family members working in positions of authority. There can never be any hint of impropriety but more than that, it is unethical to do so.

CPAs can also work in the sector of tax compliance and consulting. Individuals who choose this field of practice need to stay current with tax laws and regulations, which typically means continuing education seminars every year. There as so many new tax laws ever year that without this continuing course work, they would quickly be behind the times.

Not only are they able to perform services for individuals, but they are also able to work in the field of corporate tax compliance as well. Keep in mind that CPAs do not have the right to make decisions for management, nor can they accept any type of gift or compensation from their clients, excluding payment for services.

Accountants and CPAs can find work in almost every industry all over the world. From the world of entertainment, to government offices, and the field of technology, all of these companies require financial services. CPAs can also work for non-profit agencies and in school systems. Interestingly, the FBI also employs certified public accountants to investigate suspected embezzlement.

Not only can accountants and CPAs work in any industry, but they can have clients from every part of the United States, no matter where their office is. As long as they are licensed by their home state, they can serve clients long distance. Files are easily transferred and phone and skype communication is all that is needed. Not all accountants take long-distance clients, but many thrive on it. An accountant in Boca Raton, Jeffrey D. Ressler & Associates, has had many out of state clients over the years, and works as well with them as he does those in his local area.

Most people who want a career in accounting start their journey in college. Obtaining a BA or Masters in Accounting is the first step in becoming a certified public accountant. After obtaining a job in the field of accounting such as an accountant manager or budget analyst, the next step should be to strive to pass the four-part exam to become a certified public accountant.

From that point, there are many lucrative positions to be found, such as a comptroller and Chief Financial Officer (CFO). Many large companies hire for this position and most will pay moving expenses and bonuses for new hires. Because these are important positions for a company, they typically use an outside firm to handle the initial hiring process.

CPAs are often known as defenders because it is their sole duty to defend the financial reporting quality for individuals, small businesses, and major corporations. Unlike accountants, CPAs are permitted to act as a “stand-in” in regards to communications with the IRS.

A highly competent CPA is considered invaluable. Their training in the field of accounting allows them to develop an objective approach and strategy to resolving any issues that a company or individual may encounter financially.

CPA’s Don’t Get Much Sleep During Tax Season

CPA’s have several seasons when they are extremely busy, often working around the clock. Many businesses and individuals pay their taxes on a quarterly basis, along with the fact that business returns are due a month before individual returns, and you have for some very busy seasonal work.

When business returns file for an extension, all the extensions come due at the same time, meaning even more work when those quarter taxes need to be filed. One has to admit that it takes a certain type of temperament to work with numbers all day, and then when you add the season aspect of overwork to it, many people would not choose that line of work. Thankfully, there are many who do.