The process of accounting is required to be conducted by every company, irrespective of their size and nature. This accounting may be fundamental and might not need a vast amount of knowledge but is essential for the business to thrive in the competitive market. When your business grows further, these necessary accounting activities will allow you to build upon it and prepare a very stable and prosperous foundation of the company accounts.
Let's have a more in-depth look at why accounting is required by a business and how can we achieve successful accounting.
Need for Accounting
Accounting is considered as the lifeblood of a company as with the help of proper bookkeeping and accounting, and it is possible to keep an appropriate track of the financial health of the company. It will also allow proper utilization of all resources and will endure that there is no wastage of resources. Moreover, it will help you to take correct and accurate decisions and will also allow you to file for taxes and VAT.
Steps for Having Successful Accounting
Here are some of the actions which should be followed by all the companies to have a successful accounting process:
Choose Accounting Method
The first and foremost step which a company needs to take is to decide on a method of accounting. There are two different types of accounting methods which are used to record the flow of cash to and from the company. The two approaches are:
In the cash method, any revenue or expense of the company is recorded when they are paid for in cash. This method is straightforward to follow as it only accounts for transaction when the said transaction is done in cash. Until and unless the cash is paid, the deal is done, revenue or expense is not recorded
In the accrual method, the receipt and payment of cash do not form any basis for the recording of the transaction. It focuses on the revenues and the expenses made. This means that if the deal has been done, but the cash has not been paid; still, the transaction will be recorded. Due to this reason, the Accrual method presents a more accurate picture of the financial position of the company.
A cash method is usually followed by any business which is just starting up, whereas the accrual method is followed by big and established companies.
Records are to be maintained of all the various transactions as the government may ask for them at any point in time. Keeping a record of all invoices and receipts of every transaction that is done by the company is a perfect practice and should be done by all the companies. The maintenance of every case of revenue or expense will allow the business to prepare its budget for a said period. The proper maintenance of the documents will also ensure that there are no mistakes while calculating Value Added Tax.
However, receipts and invoices are not the only documents that need to be recorded. All the documents related to business permits, various certificates of approvals, trade licences should also be adequately maintained.
Keep all Documents Organized
For easy accessibility, all the documents should be maintained and kept properly. This will save time while renewing the certificate or applying for a new license. Once your business start growing, the number of such documents will also grow with it. Keeping the records organized will make sure that your business is efficient and will significantly reduce the number of mistakes.
Use Distinct Accounts for Personal and Business Accounts
Using separate accounts for business and personal affairs is an excellent practice. Keeping them separate will increase your goodwill and people will treat you more professionally.
Moreover, mixing the two accounts will lead to confusion as to which transactions belong to the business and among them which ones are taxable. To remedy this situation, it is advisable to open a corporate bank account in a separate bank and a personal bank account in another bank.
Create a Balance Sheet
A balance sheet is one of an essential financial statement. It is a report of all the assets and liabilities of the business are a specific point in time. It is the gist of all the financial data of a company and can provide us with an idea of how good or bad the company is doing. After reviewing and analyzing the balance sheet, the management of the company can better investigate the workings of the company.
Get Professional Help
One cannot hope to continue business for very long without using basic accounting and bookkeeping. If you are starting with your company, it may be possible for you that you do all the accounting and bookkeeping yourself, but as your company shall grow, the need for proper and professional accounting will gradually increase.
Thus it is advisable that you should hire an excellent team of accountants. It is entirely understandable that a start-up will not have enough funds to hire an accountant and in such a case, they can hire a part-time accountant who would suit the needs of the company and also keep the finances in check.
“JAXA” is one of the reputed chartered accountant firms in Dubai which will understand your business needs and will provide you with financial advice accordingly. At “JAXA”, we strive to help you by providing accounting and bookkeeping services, both traditional in-house accounting and outsourced accounting and also offer solutions for your business. For more information, do contact us today – we’d be happy to help.