Accounting Basics
Understanding the accounting basics within any business is very important. The reports that are compiled will help you to make decisions
about how you need to change or improve your small business. Whilst you can rely on other people doing the work for you, it is worth while taking
time to understand the basics of the reports and try and get the correct accounting information you require.
Why is the basics of accounting so important?
Keeping abreast of the business accounting basics may sound a bore, but it is vital to keep abreast of the financial position of your small business.
So many businesses fail because they miss this vital point of accounting basics. Whether it is ensuring that customers are paying on time
or forecasting how much cash you're business is going to have in six months time, having a good accounting system in place is the strong
foundation that will allow your small business to succeed.
Bookkeeping Basics
Completing everyday transactions is part of bookkeeping basics. Bookkeeping basics covers credit control, invoicing, reconciling bank accounts, writing
cheques, posting receipts, producing profit and loss accounts, and maintaining the balance sheet. Every small business needs to complete their bookkeeping basics on a regular basis so that the correct accouting reports can be produced.
Types of accounting records
There are two types of accounts which make up accounting basics - financial accounts and management accounts.
Company Financial Accounts basics
Every limited liability company needs to produce a set of accounts at the end of the company's financial year. These normally consist of a
profit and loss account, balance sheet and cash flow statement.
Every company in the UK has to submit these accounts to Companies House, as specified within the Companies Act. These accounts become publicly
accessible records and can be accessed by anyone for a small fee.
These Financial Accounts will need to be completed by Accountants with a report from the Directors and the Accountant. Small companies can
produce abbreviated accounts. Check with your Accountant as to the reports which you need to submit for your small business.
Your financial accounts will enable investors to look at the performance of your company. The bank may also require a copy to help secure
overdrafts or small business loans.
The basics of self employed financial accounts
If you are self employed you will still need to produce accounting records once per year, although these need not be as comprehensive as company accounts.
You will use this information to complete your self-assessment tax return.
If you are self employed it is worthwhile setting your financial year end to the 31st March, in line with the nominal tax year. This makes it
much easier when completing your tax return and can save money if you are using an external accountant or bookkeeper to maintain your accounts.
Management Accounts basics
Do you know from your accounting reports how much money your small business will have in the bank in six months time? You should have a rough idea. If not, how can you budget
for staff, premises and other outgoings?
The tools that give you this information are management accounts.
Management accounts are reports which help you make decisions in running your business. Cash flow statements and forecasts, stock reports,
fixed asset registers, purchasing processes - these are all tools that help you keep your finger on the pulse of your business.
Every business is different and requires different reports, depending on the size and type of company. Some companies produce these accounts
monthly; others will produce some of these reports on a weekly - or even a daily basis.
Accounting Courses
If you want to learn more about the basics of accounting it may be worth looking into an accounting course, these can either be completed at home in your spare time or a part time college course.
You can learn anything from the basics to becoming a fully qualified accountant. All the accounting bodies run courses, which normally start in September. The Open University also run a Certificate in Accounting, which is a one year course.
If you are looking into a course because you work in accounting and want to learn more, it may be worth asking your employer if they would fund the course.
Accounting software and free accounting software
Whilst it is not a requirement to use an accounting software package in order to handle your business accounts, modern software packages streamline the whole accounting system - producing management accounts at a touch of a button and significantly reducing the amount of time spent on bookkeeping.
There are lots of different accounting packages available to help your small business, from free software you can download from the internet to major financial systems costing millions of pounds.
Look at our accounting software reviews section for more information on the most popular accounting packages available, including the free accounting software downloads.
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