Accounting is a vital business function no matter what the size and nature of the company. By having accounting books and records correctly taken care of, a company will be able to determine how much profit it earned previously as well as the current financial health of the business. The accounting books will need to be accurate and they should not be based on assumptions or influenced by bias. The following is a quick look at essential small business accounting methods.
Accounts receivable is the account of all of the cash that?s presently owed to the company from its debtors. There are some customers who don?t make immediate payments on their purchases and promise to make the payment at a specific future date. These customers are called debtors. During the purchase, the seller prints an invoice and gives the customer a statement indicating the total sum owed by the customer. The seller must keep a watchful eye on the amount of money owed as well as the period permitted for payment. If the buyer goes past the specified period, then the seller must initiate some kind of action.
Accounts payable is the opposite of accounts receivable and it?s all money that?s owed by the company to its creditors or lenders. The lease of the building, loans, taxes, wages, all come under the accounts payable account. There are certain vendors who give discounts to buyers if they make the payment on time or prior to the specified date. A company needs to be aware of its accounts payable to ensure that it is able to take advantage 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. When a business makes the payment it owes, or if it gets the cash it?s owed, then the company would need to make an entry in its book of records. As always, the accountant will need to be sure of accuracy while making the entries.
Inventory control is an additional component of small business accounting and it?s one of the most important areas. With good inventory control, a business would not need to deal with scenarios where it has to forgo buyers as a result of unavailability of stock. The company will in addition be able to know how much money it has locked in its inventory as goods.
To be sure that the business operates efficiently, ordering inventory on time is critical. Payroll maintenance, cost accounting, and management accounting are some of the additional elements relating to small business accounting. Correctly maintained accounts will help with the growth and smooth functioning of the business.
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This entry was posted on Monday, February 6th, 2012 at 11:49 am by Jeremy Winters and is filed under Accounting. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
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