Many new business owners make the mistake of neglecting the importance of the End to End accounting reconciliation for their business. To be successful, any company must have a system to record, classify, report, and analyze your company's accounting numbers. Any companies which never establish their concrete accounting system, will let the numbers slide and ruin your business eventually.
The best way to keep up on your accounting figure is to have a system to track these. Find a system that suits your temperament and business needs. The selection of your choice of a system would be made up of : a computer program, ledger, accountant/(s) , book keeper or any other methods.
The system used will fall into one of these two categories:
-cash-based method (you count income when it comes in and expenses when they go out) or
-Accrual-based method (you count income when you invoice and expenses when you commit to pay).
The difference is timing but it can possibly cause the system to report accruals if your Business Nature require holding of Inventory level regularly or if credit is part of your business. The accrual method is better under certain circumstances, however the cash method is simpler.
In reality, accounting can be pretty straight forward if the accounting model is followed strictly. The accounting model is made up of 3 simple parts. the first part is the ledger page with a T line drawn down the middle dividing the debit and credit portions into two. The second part consists of these five sections found in a set of financial statements. They are: Assets, Liabilities, Equity, Revenue and Expense ;
The third part is a rule that states: Any transaction that pertains to a section (Assets, Liabilities, etc.) that results in an increase or decrease has to be recorded on either the left or right side of the ledger page.
Accounting need to be tracked consistently and as real time as possible to ensure nothing has been missed out. Or should a general ledger is preferred , make it a regular practice to post the sales and expenses of your business to the general ledger at least twice per month.
At the end of your accounting cycle, you will publish your financial reports to provide the financial results for that accounting period to be shared with the business stake-holders.
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