How To Learn Accounting On Your Own – 60% of small business owners feel they are not knowledgeable when it comes to finance and accounting.
About 72% of business owners take care of their own accounting tasks, ranging from basic bookkeeping to the entire end-to-end process, including filing taxes.
How To Learn Accounting On Your Own
Whether you take care of your own books or have an accountant do it for you, it pays to understand your business’s finances.
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That way, you have more visibility into potential problems, such as cash flow (which is a major factor in 82% of small business failures), as well as potential money-saving opportunities.
In this guide, we’ll explore why it’s worth taking a closer look at your small business’s books and how you can do it easily and effectively.
Disclaimer: Alliance Virtual Offices does not provide tax, legal or accounting advice. This material is prepared for informational purposes only and is not intended to provide, and should not be relied upon as, tax, legal or accounting advice.
It mainly focuses on receivables (in money) and bills payable (out of money). This is important because these figures give the business owner visibility into their business finances, rather than directly showing profits.
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The accounting process focuses more on day-to-day financial transactions. It involves a lot of data entry and cross-referencing.
Bookkeeping is the management of the day-to-day financial affairs of a business – updating spreadsheets, reconciling bank statements and processing payroll. Accounting is more about financial monitoring: taking the documents prepared by the bookkeeper and using them strategically to consider the company’s financial health and growth. Fundera
Accountants traditionally take a more advisory role in business. An accountant manages the books of a business, prepares financial reports, and writes taxes for the business.
To do this, they must be certified public accountants (CPAs), which means they are regulated by their state board of accounting.
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The CPA designation distinguishes licensed accounting professionals committed to protecting the public interest. These professionals provide financial statement audits and other attestation services to inform investors about the financial health of organizations. –
About half of all registered accountants in the United States are CPAs. According to the Accounting Institute for Success, there are approximately 1.3 million accountants and approximately 665,000 CPAs in the United States.
For many small businesses, hiring an accountant is not necessary. However, it depends on the size and complexity of your business, your growth ambitions and how much time you can devote to bookkeeping.
Accountants can advise on your legal structure, developing a business plan, finding credit, business growth, franchising, buying or selling a business, and more.
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Two types of bookkeeping are single-entry, which is sometimes used by very small businesses and the self-employed. The second is double entry, which is more accurate and enables organizations to track their financial performance more efficiently.
Single-entry bookkeeping is often used by small businesses and the self-employed for simple transactions. It records transactions such as cash, tax-deductible expenses and taxable income.
It is known as single-entry because only one entry is made for each transaction, just like a personal checkbook. In one column, income is recorded as positive, while expenses are marked as negative amounts.
It is not efficient for large or complex businesses because it does not track transactions such as inventory and cannot be used to develop a balance sheet.
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For businesses, double-entry booking is a more common method for even small businesses. Each transaction requires two entries – a debit entry in one account and a credit entry in the other account.
This system provides a more accurate set of accounts and allows business owners to track asset and liability accounts and closely monitor profits and losses.
It has a higher purpose: to keep a close eye on your business finances and ensure that enough money is flowing in to meet expenses and facilitate growth.
When you know exactly where your money is going, you can make better budgeting and strategic decisions. For example, whether to apply for a business loan or not.
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It is important to keep all business and personal finances separate. That way, you’ll have a more accurate representation of your small business finances. More importantly, depending on the structure of your business, clear separation means that you will not be held personally liable for any debts or problems related to your business.
A clear separation of your personal and business finances is also important in the event of an IRS audit. Even if you are in full compliance with IRS tax laws, you may still be audited. If you face an audit, a clear paper trail and organized financial records can easily answer any questions you may have with the IRS about expenses, income, losses, tax returns, tax refunds and more.
“An audit puts the burden of proof on you to explain your business expenses and income. Good records save you from digging through piles of receipts and figuring out which purchases were for business and which were for your personal expenses. Keep your business finances separate. Keeping your business finances separate also reduces your legal liability and your taxes and business It can help you manage accounts more efficiently.
Regular, consistent record keeping and tracking streamlines your tax processes and reduces last-minute hassles to meet tax filing deadlines.
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Since your business already has detailed records, reporting becomes easier. By staying on top of your business finances through organized bookkeeping, you’ll have more time to accurately calculate deductions as well as work more efficiently with all tax professionals.
This also reduces the chances of human error. By managing your transactions and reconciliations, and giving yourself time to do so (rather than leaving everything to the last minute), you can spot errors more easily. Catching mistakes early rather than late saves a lot of time and worry later.
An important role of bookkeeping is that it can support any business financing applications you decide on in the future.
The organizational component of bookkeeping shows potential lenders that you’re on top of your finances, which helps build trust and credibility. Plus, it means all the necessary records are organized and easy to find.
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Stay on top of your business finances, and you’ll have peace of mind knowing your books are in order. Not only does this free up your time when the tax deadline approaches, but it also means that any financial statements or documents you need for effective planning can be handled easily and quickly.
While the remaining 75% do their own accounting, about 64.4% of small business owners use accounting software to help them.
However, as your business grows, it makes sense to consider all available options to ensure your books are accurate and up-to-date.
It’s common for self-employed people and even small business owners to handle their own bookkeeping, especially when starting out.
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However, this can change as the business grows and the business owner takes on more work and responsibility.
On the plus side, managing your own books puts you in a position of control. Your financial status is visible and you can monitor money coming in and money going out.
It also saves costs because you don’t have to pay for a bookkeeping service or a professional to do it for you.
Considering that most startups use personal equity, traditional loans, and their own personal savings, it’s easy to see why cost savings is a top priority.
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To help with the process, consider using a small business bookkeeping template. Here are some examples for Excel.
Spending time managing your own financial records is taking you away from your core business. When time is tight or you’re under pressure to meet client deadlines, it’s easy to leave your bookkeeping duties behind.
Always remember that your small business may face an audit from the IRS at any time.
If this happens, you need to be able to answer questions about your financial records. If there are mistakes or holes in your bookkeeping, your business could face penalties.
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Not only that, but fixing the problems will take your time – and you’ll need to hire a professional to help.
And when customers hear you’ve been busted by the IRS, it can cost you your reputation, too.
This is not to say that maintaining your own books is a bad decision. But, be very aware of the responsibilities that come with it.
Consider taking a small business bookkeeping class. Search through an online course provider like Udemy or ask your local business advisor for recommendations.
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These services are usually supported by a team of accountants using online bookkeeping software, with services varying depending on what you need.
At the time of writing, the bench offers two main plans. Their is the first standard plan that provides monthly bookkeeping with year-end tax ready financial statements.
Another is the premium plan which includes tax advisory services, one-on-one tax strategy planning and annual tax reporting.
Your books are maintained by a team of professionals who are also available to provide help and support whenever you need it. This gives you complete peace of mind.
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It also frees up your time, allowing you to focus more and less on your business
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