Accounting is an important business function irrespective of the size and nature of the business. With accounting books and records properly maintained, a company would be able to ascertain how much profit and loss it made in the past and also the present financial health of the business. The accounting books need to be accurate and they should not be based on assumptions or influenced by bias. Here is a brief look at essential small business accounting practices.
Accounts receivable is the account of all the money that is currently owed to the business by its debtors. There are some buyers who do not make immediate payments for their purchases and promise to make the payment at a certain future date. These buyers are called debtors. At the time of purchase, the seller issues an invoice and gives the buyer a statement indicating the total amount owed by the buyer. The seller should keep a watchful eye on the amount owed and also the period allowed for payment. If the customer goes beyond the stipulated period, then the seller must initiate some action.
Accounts payable is the opposite of accounts receivable and it is all money that is owed by the business to its creditors or lenders. The rent of the building, loans, taxes, wages, all come under the accounts payable account. There are certain vendors who offer discounts to customers if they make the payment on time or before the stipulated date. A company should be aware of its accounts payable so that it can make use of the discounts and also keep a check on how much money goes out of the business and at what point of time.
Order entry is the extension of accounts payable and accounts receivable. If a company makes the payment it owes, or if it receives the money it was owed, then the company would have to make an entry in its book of records. As always, the accountant should ensure accuracy while making the entries.
Inventory control is another aspect of small business accounting and it is one of the most vital aspects. With proper inventory control, a business would not have to face scenarios where it has to forgo customers due to unavailability of stock. The business would also be able to know how much money it has locked in its inventory in the form of goods.
To ensure that the business operates smoothly, ordering inventory on time is imperative. Cost accounting, payroll maintenance, and management accounting are some of the other aspects relating to small business accounting. Properly maintained accounts will lead to the growth and smooth functioning of the business.
