Accounting can be tedious work,however it helps you get more organized,brings more clarity and allows you to work more efficiently. In a day and age where business is cut throat competition,financial insights could be the game changer for your business. In many instances it could even be your competitive advantage.Without accounting, you’re driving blind like a car without knowing how much fuel is left in the tank. Proper book keeping gives you sight of what’s happening both internally and externally.
In this guide, we’ll break down the basics of accounting, we’ll show you why it is critical and the seven key steps to setting up and optimizing your own accounting process to help you get on the fast lane past your competition.
What is accounting?
In simple words, accounting is the process of tracking of all your company’s financial transactions, so you can see clearly where your business is spending money,where your revenue is coming from and which tax deductions you’ll be able to claim.
Why does accounting matter?
Accounting provides answers to critical questions viz
1.Is my business profitable?
Profit matters.Profit is the most critical measure of a business.It keeps your business ticking.Well kept books of accounts will always provide the correct answer to this critical question.
2.Are my operations cost effective?
You may be able to see your bottom line by glancing at your bank balance, but ups and downs in your account are also telling a story.Are sales up? Are my operations costs too high? Who knows? Paying attention to your financial statements is a great way to get to know the story of your business
3.Are my operations cost effective?
Taxes. There is no escaping from taxes. Well kept books of accounts will help you legitimately claim deductions. The more information & supporting documents your CA has, the better tax return will be.
4.Will I get loans?
If you need financing of any kind, having well-kept books gives lenders or investors a clear idea of your business’s current financial state and allows them to make financial projections about your company’s ability to pay off loan in the future.
Where to Start?
You probably are thinking that these tasks are easy and doable.However, from our experience working with multiple business, unpreparedness is precisely the problem that gets them drowned when everything seems to be fine and running smoothly. It then suddenly hits you like a Tsunami out of
nowhere.Here’s a few steps you can follow to help ensure you have the basics sealed tight and functioning for your advantage.
Step 1: Separate your business and personal expenses
It is critical to separate business finances effectively. In fact, we would suggest to permanently separate them from your personal finances.
If you are running a limited company (Pvt Ltd or LLP or Public Ltd) there must be distance between your personal and business finance.A corporate company is distinct legal entity different from the promoters.The law requires that finances of company be tracked separately.
Plus, you’ll want to pull your hair out when it’s time to reconcile bank statements, you have to hunt down the receipt for lunch to remember if it was a personal expense or a client meeting.
Step 2: Choose a bookkeeping system
There are two main accounting methods: single entry and double entry.It is a matter of picking the system that’s right for your business and applying it consistently.
Single-entry is a simple system that might work for you if your accounting is straightforward. Entries are recorded one time, as either an input or output If you are doing your own accounting, this is the approach you are likely to take.
Double entry is much more complex, but also more detailed and effective. At first, all transactions are entered into a journal and then each of them entered into the ledger twice, as a debit and credit. If you are a corporate entity in India, you will be required to maintain your books under the double entry system mandatorily.
Step 3:Choose an accounting method: cash or accrual
If you are using cash accounting, you only record transactions when money has exchanged hands. So if you billed a customer you will not enter it till your customer has paid you.
Under the accrual method, you will record the income when you bill the customer,rather than waiting for them to pay you.
If you are a corporate entity in India, you will be required to maintain your books under the accrual system of accounting.
Step 4: Organise and store your documents
At tax assessment time, the burden on you to show validity of all of your expenses, so keeping supporting documents like receipts and records is crucial. Income tax law in India requires you to maintain the documents for a minimum of 8 years. It is smart to use cloud based software like Zoho Books or other such software to store receipts so you don’t have to deal with smudged receipts.
Step 5:Make it a habit
It’s easy to fall behind on your accounting when you’ve got other things happening. To stay on track, try setting a finance date with yourself once a month to get it done. If you do happen to fall behind, Integra Books can help you get caught up in no time.
There you have it, basic steps to make the foundation of your accounting processes strong and effective for your business’s advantage. Accounting is complex but with a strong foundation, you’ll be equipped to race past competition and ensure you are always on track to profitability.
In this new age of technology why should accounting be cumbersome and boring? Let the experts at Integrabooks help you.