How to Do Small Business Accounting

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How to Do Small Business Accounting

Written by: MissP 363 views

This process involves five steps: client document receipt, data entry, data verification, printing/binding and client document return/consultation. Some steps have certain substeps or finer details which will be explained. Presented here is a graphical explanation of the process.

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Steps

Client Document Receipt – Assuming that the client wants “traditional” accounting services, the firm must ensure that it has acquired all of the documents needed in order to produce financial statements. This includes, but is certainly not limited to all printed and electronic evidence of income, expenses, bank accounts, credit cards, long-term liabilities and payroll. Assuming the firm is using adequate accounting software, taxes should be computed automatically as data is entered into the system.
Data Entry – This is usually the most time-consuming part of the process. Every economic transaction which occurred in the period being measured should be entered into the system accurately and consistently. This includes all items of income and expense, additions to and withdrawals from bank accounts, incurrences and payments of liabilities as well as all relevant payroll data. If there is a problem in discerning how a particular transaction should be treated, then that transaction should be placed in a suspense account.
Data Verification – This step breaks down into three substeps: bank reconciliation, cash on hand analysis and cleaning the suspense account.

Reconciliation of the bank accounts require possession of the monthly bank statements. The period covered in the statement should match the period entered in the system. Checks, deposits and withdrawals should be compared, one to one, checking off each item as it is confirmed. Provided there is no discrepancy, the system should report a zero balance after all items are confirmed. If not, the accountant should review the bank statement and the system to see if something was not entered or confirmed correctly. This is where a good deal of the mistakes made in the Data Entry phase are discovered. But it’s also where a lot of client-level issues are found.

Analysis of cash on hand can be made by exporting the cash on hand data from the accounting system into a spreadsheet. The writer suggests separating the data into five different tabs on the spreadsheet: income, cash paid out, deposits, withdrawals and cleared transactions. The Income tab is a summary of the whole analysis. It starts with a revenue figure or “General Monthly Sales,” minus “Total Deposits,” minus “Cash Paid Out,” plus “Total Withdrawals,” plus (or minus) “Cleared Transactions Discrepancy,” plus (or minus) last month’s ending balance. This should give the ending monthly cash on hand balance. To facilitate intra-month consistency, each one of these totals should be cell-referenced from their respective tabs. The Cash Paid Out tab should list all of those transactions involving a payment of cash. These are typically operational expenses. The Deposits tab should list all of the deposits made from cash on hand to the bank account. This should be checked against the deposits total given on the bank statements. The Withdrawals tab should list all of the withdrawals made from the bank account to cash on hand. Like deposits, this should be compared to the total provided on the bank statements. The Cleared Transactions tab should include those transactions that have a corresponding “netting-out” entry for the same month. If the corresponding entry is not found, the difference must be adjusted using the “Cleared Transactions Discrepancy” line on the Income tab. These are typically transactions involving tax liabilities and their corresponding payments. The entire point of a cash on hand analysis is to provide the accountant with the ability to answer specific questions about the client’s cash flow at any given time.

Cleaning the suspense account is about using one’s judgment and communication skills to arrive at the best possible treatment of a transaction. If, after looking at all of the available documents and data, it is found that the transaction in question cannot, without a substantial departure from the truth, be placed in an appropriate account, then it is time to contact the client for further details. This should the option of last resort, however, as the client can sometimes be very busy and does not have the time to be talking about something the firm may have been able to resolve on its own with the documents and data already provided.
Printing and Binding – Assuming that the firm is using adequate accounting software, to organize data and produce financial statements, this step of the process should be very easy. Be sure that your printing settings are consistent and that the financial statements look the same from client to client, unless specifically requested otherwise. The financial statements (income statement, balance sheet and selected payroll reports) should then be placed in the client binder. The firm should be selective about which previously-provided documents should be placed after the financial statements. A good rule of thumb would be to include all statements of a monthly nature. All previously-provided documents not placed in the binder should be placed in a separate folder.
Client Document Return and Consultation – After the financial reports and previously-provided documents have been placed in a three ring binder, the binder along with the separate folder containing all supporting documents, should be given to the client. This would best be done at a time when a meeting is to occur with the client to consult about the financial condition of the client and/or the client’s individual tax situation. Such professional service will not only leave a positive and lasting impression on the client, but also increase the likelihood that the client, through word of mouth, will bring other clients to the firm.