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Contents:<\/b><\/h3><\/p>\n\t
1. Small business accounting basics<\/a><\/p>\n 2. Create your bank business account<\/a><\/p>\n\t 3. Choose your accounting and bookkeeping methods<\/a><\/p>\n 4. Set up accounts for recording transactions<\/a><\/p>\n\t 5. Record transactions in accounting books<\/a><\/p>\n\t 6. Choose your business accounting software<\/a><\/p>\n\t 7. Generate financial statements<\/a><\/p>\n\t 8. Tax preparation in everyday accounting<\/a><\/p>\n\t 9. Reconcile and close your books<\/a><\/p>\n\n\n\n <\/p>\n\n\n\n Small business owners need to get a working grasp of basic bookkeeping and accounting. More so even than owners of large companies since they can\u2019t usually delegate all<\/em> that work to business accounting professionals simply due to the accounting costs<\/a>. That\u2019s why understanding the essential principles and terms in accounting<\/a> is so important for them. <\/p>\n\n\n\n By understanding how to properly set up a small business accounting system, you can do it more accurately from the start. It can prevent many issues that small businesses face, such as poor cash flow management, mixing personal and business finances, or reporting wrong data to the IRS<\/a> (which can cost you a lot).<\/p>\n\n\n\n So let\u2019s take it step by step and answer the most basic questions first.<\/p>\n\n\n\n Bookkeeping is the first tier of the process that your small business financial transactions go through. It\u2019s mostly based on accurately recording<\/em> all the financial transactions in your books, hence bookkeeping. You can think of it as the general financial administration of your business. The professionals that record those transactions are called bookkeepers.<\/p>\n\n\n\n Accounting for a small business usually means summarizing and analyzing<\/em> financial transactions, producing accounting reports, and timely providing data for tax purposes and tax returns. The professionals that perform those various analyses on the financial data are called accountants, or after certification, Certified Public Accountants (CPAs).<\/p>\n\n\n\n To make the distinction even clearer, let\u2019s use an example of a restaurant. A bookkeeper is like a person who\u2019ll make sure all ingredients are fresh and ready to be used, taking in stock, and making half-products, while an accountant is similar to a chef who\u2019ll create meals out of those ingredients and pre-made products.<\/p>\n\n\n\n In reality, the duties of bookkeepers and accountants<\/a> can sometimes overlap but the above descriptions and example provide a good working distinction.<\/p>\n\n\n\n As you\u2019ve probably noticed, when running your own business, you\u2019ll be tasked more with basic bookkeeping than advanced accounting. <\/p>\n\n\n\n Running a restaurant business or serving one? Check out how Synder’s Daily Summary feature can streamline restaurant bookkeeping<\/a>.<\/em><\/p>\n\n\n\n There are three major reports, also called financial statements, a business needs to create during a year – a cash flow statement, an income statement, <\/em>and a balance sheet.<\/em> <\/p>\n\n\n\n They give a summary of financial operations, cash flows, and the overall financial performance of a business for a specific date or time period. <\/p>\n\n\n\n An accounting period is a set tracking period for accounting performance within which records are gathered and analyzed. It can be either a calendar or fiscal year, but also a month, or quarter. <\/p>\n\n\n\n As you\u2019ll read in a moment, the same accounting or bookkeeping term can have multiple names. But don\u2019t be discouraged, as long as you stick to one of them, that\u2019s ok. So let\u2019s look at how those terms are defined.<\/p>\n\n\n\n A cash flow statement, as the name suggests, gives a report on the movement of money<\/a> (and cash equivalents too) from and to your company during a specific period of time.<\/p>\n\n\n\n There are certain sources from which the cash flow statement is made. However, from the standpoint of small business accounting, only the operating activities are usually applied. Here you\u2019ll use data from sales receipts, payments made to the supplier, rent payments, income tax payments, and many other operating activities.<\/p>\n\n\n\n With cash flow statements, cash basis accounting is used, meaning the money flow is recorded when it leaves or enters your business accounts and not when the billing, invoice, receipt, or other action is triggered. <\/p>\n\n\n\n Find out the difference between<\/em> direct and indirect cash flow<\/em><\/a>.<\/em><\/p>\n\n\n\n We\u2019ll start by presenting the many names of the income statement: the statement of operations, profit and loss statement<\/a>, and statement of earnings. All of them mean the same thing. <\/p>\n\n\n\n It looks at 4 values: revenues, expenses, gains, <\/em>and losses<\/em> in order to arrive at a net value<\/em>, where you subtract the company\u2019s expenses and losses from revenues and gains. <\/p>\n\n\n\n An income statement is produced over a specific period of time, usually quarterly or yearly. Larger companies tend to use the accrual basis of accounting, meaning that revenues and expenses are recorded at the time of the transaction (when you get a bill or raise an invoice), not at the time when the payments are made. <\/p>\n\n\n\n However, for small businesses, the general advice is to use cash basis accounting, since it\u2019s usually simpler to navigate.<\/p>\n\n\n\n Find out what the difference between <\/em>net profit and revenue<\/em><\/a> is.<\/em><\/p>\n\n\n\n The final financial statement is the balance sheet statement. It\u2019s a bigger-picture type of report that gives you a bird’s eye view of how well your business is doing. It\u2019s also known as a statement of financial position or statement of net worth.<\/p>\n\n\n\n The balance sheet<\/a> shows the overall health of your business, as it takes into account assets, liabilities, and shareholder equities (for small business owners that\u2019s usually the owner\u2019s investment).<\/p>\n\n\n\n It looks at the balance or the ratio between those 3 elements – how what you now own relates to what you invested and what you owe at a specific point in time.<\/p>\n\n\n\n This report is produced mostly yearly. It\u2019s necessary for a small business when applying for loans or investments, but also crucial for your own knowledge and understanding of your business.<\/p>\n\n\n\n Now that we have the accounting basics covered, let\u2019s look at the next step – opening up a business bank account. The first and one of the most important elements of running a small business is setting up a business bank account. <\/p>\n\n\n\n Surprisingly, some small and medium businesses as well as many self-contractors, especially at the early stages, often ignore this step, preferring to process business transactions through their personal bank accounts. <\/p>\n\n\n\n Though this approach can initially reduce bank processing fees, it can cause significant losses and problems in the future, including the wrong classification of your business, incorrect tax filing, or missed deductions. If you add personal loans, insurance, and credit cards to the mix, it becomes very hard to tease out your personal life financials from your business ones.<\/p>\n\n\n\n So opening a separate business bank account is a must. And here\u2019s a simple step-by-step guide<\/a> you can use as a checklist.<\/p>\n\n\n\n The next step is to decide how you\u2019re going to track your business income and expenses. In other words, you need to choose the accounting method that\u2019ll fit your business needs. <\/p>\n\n\n\n We spoke about cash basis and accrual basis accounting when discussing 3 main financial statements. So let\u2019s look into it further.<\/p>\n\n\n\n Cash based method records the actual inflow or outflow of money from your accounts, while the accrual method anticipates revenue and expenses. For large businesses, where the time between invoicing and payment can be substantial, so can the transaction amount, it makes sense to use accrual accounting as it gives an accurate overview of the company\u2019s financial situation.<\/p>\n\n\n\n However, for small businesses, the cash based method of accounting is more commonly used as it\u2019s more straightforward and simpler to execute.<\/p>\n\n\n\n The single-entry method suggests entering each transaction only once. For example, upon a sale, you record the sum of the purchase in your account. It\u2019s a rather simple method of bookkeeping that doesn\u2019t provide for your inventory, for example.<\/p>\n\n\n\n The double-entry method is more sophisticated and gives you a clearer view of your finances. It implies recording two entries for each transaction: a debit and a credit, thus keeping your books balanced. The method allows for faster errors and fraud detection, better identification of profit and loss, and easier creation of financial statements. <\/p>\n\n\n\n For small businesses aiming at more accurate accounting, a double-entry method is a better choice. If you think that means double work, don\u2019t worry, with the right software, you don\u2019t actually need to physically input transactions into two separate accounts, as the software does everything for you.<\/p>\n\n\n\n Learn more about <\/em>accounting for a retail store<\/em><\/a>.<\/em><\/p>\n\n\n\n In accounting, the word \u201caccount\u201d doesn\u2019t mean your bank account but stands for certain types of financial transactions that include sales, payroll, and many more.<\/p>\n\n\n\n The concept behind various accounts helps differentiate various types of transactions to help track your income and expenses more efficiently. There are 5 major types of accounts and they comprise assets, liabilities, income, expenses, and equity.<\/p>\n\n\n\n All your business transactions, depending on their type, will be allocated to these accounts. And the collection of those accounts is called the chart of accounts.<\/p>\n\n\n\n If you\u2019re using a single entry method, you record your income and expenses in a cash register. But if you use a double entry method, all your transactions are made as journal entries that are subsequently summarized in a general ledger. <\/p>\n\n\n\n All business accounts are recorded in your accounting books. Of course, accounting books aren\u2019t real books, as they used to be back in the day. They\u2019re rather a means of keeping and tracking your accounting records. <\/p>\n\n\n\n Typically, businesses use the following methods of keeping records: paper documents, spreadsheets, and accounting software.<\/p>\n\n\n\n The paper accounting method, thankfully, is becoming a thing of the past for small businesses, and for a good reason. No matter how few accounting activities a business has, paper accounting is error-prone, and the risk of losing the transaction data is very high. <\/p>\n\n\n\n Time-consuming manual data entry and subsequent calculations, as well as misplacement of documents, are the biggest drawbacks of paper accounting. <\/p>\n\n\n\n Spreadsheet software is a means of keeping your accounting data in electronic tables, such as MS Excel or Google Spreadsheets. You can record, correct, and safely keep your accounting data on the computer, as well as share them with an accountant when needed, since both types of spreadsheets provide sharing and multi-user options. <\/p>\n\n\n\n When it comes to the bookkeeping basics, one of the biggest drawbacks of such programs is that you need to enter your data manually, which takes time and bears a high risk of errors. For recording transactions, spreadsheet software can be as time-consuming as paper accounting. However, the clear advantage over paper accounting is the option of making some simple financial calculations and the ability to share them with accounting professionals. <\/p>\n\n\n\n Accountants usually use much more sophisticated software that allows them to import spreadsheet data into their software program and produce reports.<\/p>\n\n\n\n One of the biggest advantages of accounting software is its ability to integrate with third-party apps, automate transaction recording and eliminate risks associated with manual data entry. It can also save time you otherwise need to import data from spreadsheets into accounting software.\u00a0<\/p>\n\n\n\n Their main function is to connect with your bank account, allow for imports of data from different sources, and perform several business operations, such as sending and managing invoices, for example. <\/p>\n\n\n\n Cloud accounting is used by 82% of small businesses, and this number speaks for itself and shows how widespread this method is. With many accounting software types, there\u2019s a wide range of solutions available on the market, from simple to sophisticated ones, that can adequately answer the needs of your particular business model.<\/p>\n\n\n\n They can vary in cost and functionality, as well as work online (cloud accounting) or require installing on your computer. The most popular solutions for small businesses are QuickBooks Online<\/a>, Xero<\/a>, Wave<\/a>, and FreshBooks<\/a>. But there\u2019s also much more specialized software like Synder<\/a> that lets you synchronize your transactions from various payment platforms or sales channels into one place.<\/p>\n\n\n\n Whichever method you choose for your small business accounting, it\u2019s essential to record all your business transactions and correctly categorize them into corresponding accounts. This way, you\u2019ll have a clear view of your finances coming and going and be able to analyze your overall performance.<\/p>\n\n\n\n Accounting software dramatically enhances the management of your books owing to its inbuilt logic (such as double-entry accounting method, etc.) that allows for understanding and categorizing entries. So even if you don\u2019t have an accountant or a bookkeeper, you\u2019ll be able to perform simple bookkeeping tasks yourself.<\/p>\n\n\n\n Synder is a multifaceted finance management application<\/a> that can integrate with online payment systems and sales channels on one side and accounting software on the other. <\/p>\n\n\n\n It can place transactions in the right accounts in your books with the help of smart rules and categorization. Synder Sync is a perfect partner for e-commerce businesses, as it has more than 25 integrations, including large marketplaces like Shopify, eBay, Amazon, and Etsy, as well as payment processors like Stripe, Square PayPal, and Afterpay. For a full list of integrations visit the Synder Sync<\/a> integrations page. <\/p>\n\n\n\n Synder ensures that there are no duplicates and that all transactions are accurately recorded. All these processes are performed automatically<\/a> by bringing and integrating data from all the sources into one place.<\/p>\n\n\n\n <\/p>\n\n\n\n\n\t
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Small business accounting basics<\/strong><\/span><\/h2>\n\n\n\n
What is bookkeeping?<\/strong><\/span><\/h3>\n\n\n\n
What is accounting?<\/strong><\/span><\/h3>\n\n\n\n
Bookkeeping vs. Accounting<\/strong><\/span><\/h3>\n\n\n\n
Basic terms for small business accounting and bookkeeping<\/strong><\/span><\/h3>\n\n\n\n
Cash flow statement<\/strong><\/h4>\n\n\n\n
Income statement<\/strong><\/h4>\n\n\n\n
Balance sheet statement<\/strong><\/h4>\n\n\n\n
1. Create your bank business account<\/strong><\/span><\/h2>\n\n\n\n
![\"""\"](\"https:\/\/synder.com\/blog\/wp-content\/uploads\/sites\/5\/2020\/06\/5553-scaled-1.jpg\")
<\/figure>\n\n\n\n2. Choose your accounting and bookkeeping methods<\/strong><\/span><\/h2>\n\n\n\n
Cash basis accounting vs. accrual basis accounting<\/strong><\/span><\/h3>\n\n\n\n
Single-entry bookkeeping vs. double-entry bookkeeping<\/strong><\/span><\/h3>\n\n\n\n
3. Set up accounts for recording transactions<\/strong><\/span><\/h2>\n\n\n\n
![\"Set](\"https:\/\/synder.com\/blog\/wp-content\/uploads\/sites\/5\/2020\/06\/20606-scaled-1.jpg\")
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4. Record transactions in accounting books<\/strong><\/span><\/h2>\n\n\n\n
![\"""\"](\"https:\/\/synder.com\/blog\/wp-content\/uploads\/sites\/5\/2020\/06\/Screenshot-2020-06-18-at-18.05.25.png\")
<\/figure>\n\n\n\nPaper accounting<\/strong><\/h3>\n\n\n\n
Spreadsheet software<\/strong><\/h3>\n\n\n\n
Business accounting software<\/strong><\/h3>\n\n\n\n
Overview<\/strong><\/h3>\n\n\n\n
5. Choose your business accounting software<\/strong><\/span><\/h2>\n\n\n\n
Synder accounting software <\/strong><\/h3>\n\n\n\n