Accounting is actually an important business function irrespective of the size and nature of the business. With accounting books and records properly maintained, a company would be in a position to ascertain the amount of profit it made previously and also the current financial health of the company. The accounting records need to be accurate and they should never be based upon assumptions or motivated by bias. The following is a quick look at essential small business accounting methods.
Accounts receivable is the account of all of the money that is currently owed to the business by its debtors. There are certain customers who don?t make immediate payments for their purchases and promise to pay the amount due at a certain future date. These kinds of buyers are called debtors. During the purchase, the seller prints an invoice and provides the customer a statement indicating the total sum owed by the purchaser. The seller should keep a watchful eye on the amount owed and also the period permitted for payment. If the customer goes past the specified period, then the seller must initiate some action.
Accounts payable is actually the reverse of accounts receivable and it?s all money that is owed 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 vendors who offer discounts to buyers if they make their payment on time or before the stipulated date. A company must keep in mind its accounts payable to ensure that it can make full use of the discounts and in addition keep a check on just how much money goes out of the company and at what point of time.
Order entry is an extension of the accounts payable and accounts receivable. If a company makes the payment it owes, or when it gets the money it?s owed, then the company would need to make an entry in its book of records. As always, the accountant will need to be sure of accuracy while making the entries.
Inventory management is an additional part of small business accounting and it is one of the most essential aspects. With good inventory management, a company would not need to face scenarios where it has to forgo customers as a result of unavailability of inventory. The company would also be able to find out how much money it has kept in its inventory in the form of goods.
To be sure the business operates efficiently, ordering inventory promptly is essential. Payroll maintenance, cost accounting, and management accounting are a few of the other areas associated with small business accounting. Accurately maintained accounts will contribute to the growth and efficient operation of the small business.
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