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Setting up Your Accounts-Part 1

by Sanjeev Archak Sanjeev Archak 1 Comment
Best Accounting Practices

When you are starting your business handling accounting and compliance can be daunting. There are a few  common mistakes that early stage businesses commit; of course with the right advice you can avoid these pitfalls. Part 1 of this blog looks at setting up your accounting system.

Open a Bank Account

It is best to open a current account for your business. This current account must be used to deposit all your sales income & paying all the business expenses. Of course there is a wide choice of banks to choose from, here are some factors to be kept in mind while choosing a bank account:

Bank charges: look at how much the bank charges for NEFT/RTGS, ATM Withdrawals, foreign currency receipts and payments, forex rates etc.

Minimum balance requirements: check the minimum balance requirements in the account. Also ease of operating the net banking must  be checked.

Mobile banking: choose a bank which offers mobile banking. This will save you a lot of time.

Separate Your Finances

There needs to be separation between yourself and the business. The individual and the business are not necessarily the same. How this works will depend on your legal structure:

For Sole Traders/Owners: if you’re a self-employed sole trader then your business and personal money are one and the same, legally speaking. But to manage your accounts, it’s still essential to have two separate bank accounts and to keep detailed financial records.

For Companies: a company is a legal person separate from its shareholders & directors. Companies are required to have bank accounts in company’s name.

Accounting for business and personal money separately allows you to have the best possible overview of how the business is faring – and is vital for tax purposes.

Keeping Tax Records

One can never escape taxes, as a business you will have to pay tax. It is a legal requirement, under GST & Income Tax Law, to have books of accounts. How much tax you have to pay depends on your legal structure. So as a business you must:

Know your tax liabilities: which depends on the legal structure of your business. Tax rates are different for companies & individuals.

Digitise your records: Income Tax Law requires you to maintain records for a minimum of seven years. Similar requirements are there in the Companies Act as well. So it is prudent to digitize your records.

Pay Taxes on Time: by paying taxes on time you will avoid payment of penalty. Let our experts at Integra Books help you with taxes.

Choose Cloud Accounting Software

Put your accounting on the cloud. A good cloud accounting software has the following features:

Ease of Use

Automation

Integration with other Apps

Zoho Books is a cloud accounting software which ticks these requirements. Zoho Books integrates with a whole range of Zoho Apps and will put your entire business on the cloud.

You can read a related blog here. Stay tuned for Part 2.

Bank Reconciliation: Why?

by Sanjeev Archak Sanjeev Archak No Comments
bank reconciliation

Bank Reconciliations. Sounds very tedious. But doing some boring and tedious work can save you from pitfalls. So sit back and read more about the need to do bank reconciliations.

What is bank reconciliation?

As the word reconciliation suggests, you will be comparing bank statements with your books of accounts for the same period. The idea of any comparison is to find discrepancies and rectify them.

Who is responsible for bank reconciliation?

If you do your own accounting, then it is you. If you have an accountant then it is the accountant. You will need to do bank reconciliation only if you are following the accrual method of accounting. If, on the other hand, if you are following the cash method of accounting, then you record every transaction at the same time as bank does; there should be no discrepancy between your books and your bank statement.

Still wondering which method of accounting to use? Read our Cash vs Accrual accounting for more.

Why should we do bank reconciliation?

1.So you don’t spend the money that you don’t have

If your bank account and your books don’t match up, you will end up spending money you don’t really have or holding on to the money you could be investing in your business.

2. To track cash flow

Cash is king. Reconciling your bank statements lets you see the relationship between when money enters your business and when it enters your bank account, and plan how you collect and spend money accordingly.

3. To detect frauds

Bank reconciliation will not stop frauds but will help you detect when it has happened. For instance, you could pay a vendor by check, but they could tamper with it, making the amount withdrawn larger, and then cash it. The discrepancy would show up while you reconcile your bank statement.

4. To detect errors

Banks are not infallible, they do make mistakes. Such errors maybe rare. If there’s a discrepancy in your accounts that you can’t explain any other way, it may be time to speak to someone at the bank.

5. Stay on top of accounts receivable

If you use the accrual system of accounting, you might “debit” your cash account when you finish a project and the client says “the cheque is going in the courier today, I promise!” Then when you do your bank reconciliation a month later, you realize that cheque never came, and the money isn’t in your books (even though your bookkeeping shows you got paid).

Bank reconciliations are like a fail-safe for making sure your accounts receivable never get out of control. And if you’re consistently seeing a discrepancy in accounts receivable between your books and your bank, you know you have a deeper issue to fix.

Conclusion

Doing bank reconciliation sounds easy but in reality it is not so. Here is where Zoho Books can help. You can sync your bank accounts with Zoho Books and even make vendor payments directly from Zoho books using the ICICI+Zoho Books integration. Reach out to us today to learn more.

Key fundamentals to Effective Accounting

by Sanjeev Archak Sanjeev Archak 1 Comment
Best Accounting Practices

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.