Accounting is actually a vital business function no matter what the size and nature of the company. With accounting books and records properly maintained, a company would be able to determine how much profit and loss it made previously and also the present financial health of the company. The accounting books have to be accurate and they should never be based on assumptions or influenced by bias. Here?s a quick look at essential small business accounting practices.
The accounts receivable of a business is the account of all the money that?s presently owed to the business by its debtors. There are certain purchasers who do not make immediate payments for their purchases and promise to make the payment at a certain future date. These customers are known as debtors. At the time of purchase, the seller issues an invoice and provides the customer a statement indicating the total sum owed by the customer. The seller must keep a watchful eye on the total amount owed as well as the period allowed for payment. If the customer goes past the stipulated period, then the seller needs to initiate some action.
Accounts payable is the reverse of accounts receivable and it?s all money that is to be paid by the company to its creditors or lenders. The rent of the building, financial loans, taxes, wages, all belong to the accounts payable account. There are certain suppliers who provide discounts to buyers if they make the payment on time or prior to the specified date. A company should keep in mind its accounts payable to ensure that it can use the discounts as well as keep a check on just how much money goes out of the company and when.
Order entry is the extension of accounts payable and accounts receivable. When a business makes the payment it owes, or if it receives the cash it?s owed, then the company would need to make an entry in its book of records. As always, the accountant should be sure of accuracy while making these entries.
Inventory control is another component of small business accounting and it is one of the most critical areas. With proper inventory control, a business wouldn?t need to confront situations where it has to forgo buyers as a result of unavailability of stock. The company would additionally be able to find out how much money it has tied up in its inventory in the form of products.
To make sure that the company operates smoothly, ordering inventory on time is vital. Payroll maintenance, cost accounting, and management accounting are some of the additional elements relating to small business accounting. Accurately maintained accounts will contribute to the growth and smooth functioning of the business.
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This entry was posted on Friday, February 3rd, 2012 at 6:38 pm by Jeremy Winters and is filed under Accounting. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
Source: http://centired.com/2012/02/essential-small-business-accounting-practices/
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