As everyone knows, accounting is mandatory to run a business. Of course, you should be aware of the income and expenses out of what you are doing. Hence, all your transactions have to be recorded in a sequential manner to learn the profit and loss of your business. There are ways to gain more profit by maintaining your accounting system properly. In a single word we can say that accounting is a precise list of all financial transactions. It gives you fruitful results when you keep all the records perfectly. Even If you missed to record a trivial data, it is going to create a big chaos in the final financial documents. You will be messed up with lot of things and you have to break your head. This article will give you specific ideas to build an effective accounting system which will not only helps you to complete the accounting tasks but also helps you to improve the growth of your business.
Accounting helps you to understand specifically from where you gain more profit and where you are spending unwanted expenses. This could obviously help you to identify the unnecessary expenses and to reduce them. If you done so, you can save a considerable amount and in turn you can invest those into the tasks where you get more profit. A system of composing the financial documents in the end of every month or at least quarterly is a good habit of protecting your business from loss. You can prepare documents such as balance sheet, profit and loss account and cash flow projection. Comparing these documents with other reports will depict a clear picture about the present financial status of your enterprise.
When you are planning to set up a systematic accounting system, you should be cleared about the method of accounting that you are going to adopt. There are two types of methods are in practice. They are, 1. Cash based method, 2. Accrual method. You can adopt the cash based method if you run a small business. Using this method, you will record the income when you actually received it and record your expenditure when you actually spent it. In accrual method, the transactions will be recorded even before you receive the hard cash for the services or the product you provide. The sales will be recorded when it is consummated and not necessary to wait till you receive the payment for it. Companies that adopt invoicing system use the accrual method. Mostly the large scale industries use this second type of accounting method.
After analyzing the method, you have to choose the best accounting software that suits your business. There are many accounting software available these days. Most of the companies switched all their transaction details from papers to computer using this software. Once you determine the method and the recording platform, prepare your chart of accounts. List out all the categories and the sub categories. Prefer to go with the software that has “double entry” standard. In this software platform, you need to record the same transaction entry twice. When you recording a transaction, you must enter the same in the corresponding opposite side and both of the entries should be balanced. This method would be more accurate of compiling the financial entries. You must maintain this system every week, if you cannot do it on a daily basis. Try to record all the transactions on the same day itself. Finally, recheck all the details during the end of the week and finish it off the week account. When you prolong the operations, it seems to be voluminous. You should reconcile your accounts on everyday basis and do not store it up. Reconciliation is really mandatory and it should be done on a regular basis to avoid any kind of chaos in the last minute. These are all the important ideas to set up a proper accounting system. If you got to say any other effective ideas you can include them as a comment.