accounting for small business owners

1. Develop a detailed budget · 2. Choose the right accounting method · 3. Separate business and personal expenses · 4. Watch accounts receivables. 9 Small Business Bookkeeping Basics to Secure Long-Term Success · 1. Talk the Talk: Brush up on Your Bookkeeping Lingo · 2. Organize Your Banking · 3. Develop a. 1. Separate your personal and business finances · 2. Maintain neat and accurate accounts · 3. Recruit a tax accountant for small business · 4. Be. accounting for small business owners

Accounting for small business owners -

Why Is Accounting Important For Business? – Accounting For Small And Larger Businesses

Accounting is an essential part of running a business, whether big or small. It is the process and method of recording, analysing, summarising, and extracting reports about the transactions of an organization or company. Accounting the company’s transactions makes the financial dealings easy and transparent to track and understand. It helps all the stakeholders easily understand the transactions, cash flows and financial performance of the company.

Why is accounting important?

Accounting records the details of the business transactions of the company in the books of accounts. These records are essential for the owners, investors, managers and other stakeholders in a company to have the ability to view and evaluate the financial details of the business. It is only when there is a precise and accurate record of every transaction that the overall financial performance of the business can be studied. The books of accounts can be summarised into reports that tell the stakeholders about:

  • Profit and loss
  • Cost and earnings
  • Liabilities and assets

The ability to measure these aspects of a business is essential for planning and decision making in the company. Financial records are also required to be in compliance with the tax reporting and other requirements of government agencies. Financial records are required at various levels of management to manage and control the operations of the company.

What is the purpose of accounting?

Accounting is the means of recording, studying and communicating financial information within and about a business. It is referred to as the “language of business” for this reason. Financial information about a business drives decision making. The main purposes of accounting are:

Recording transactions

At the simplest level, financial accounting is the recording of the transactions of a business. This day-to-day recording process is the basis of the entire financial accounting system. When transactions are recorded, you are able to look up and retrieve details about a specific transaction whenever you need to. You can also easily compare current data to historic data to see trends. Financial accounting enables us to study and measure the performance of a business over a period of time.

Budgeting and planning

Most small businesses work with a fixed amount of resources to fund their operations. It takes planning and budgeting to properly forecast the resources that the business would require. Budgeting and planning are guided by past records of financial transactions that can be used to project and anticipate future trends. Financial accounting helps the management plan ahead and allocate resources appropriately for the near and distant future.

Decision making

Financial accounting records help drive decision making at all levels of the organization. Every level of management uses the financial data pertaining to their scope of operations in order to make decisions. These decisions could be as simple as determining which supplier is more cost-effective. Managers use these reports to make the operations more efficient and profitable. Financial accounting reports could also be used to make major decisions such as extending the operations of the company to another location. Accurate reporting also makes it easier for the management to avoid losses and mismanagement.

Business performance

Financial accounting reports quantify and measure the success and failure of a company in monetary terms. Business owners can ascertain exactly how much profit or loss the business has made over a period of time. Key performance indicators (KPIs) can measure different aspects of business performance. These KPIs can be studied over a period of time to study the past performance of the business. It can also be used to compare companies with each other. Regular monitoring of reports helps the business owner identify bottlenecks and potential problems and address them before they become a bigger problem.

Financial position

The financial position of a company is of interest to the owners, shareholders, investors and lenders. The precise financial position of a company is seen in the financial accounting reports. These reports tell the business owner or stakeholder exactly how much is invested in the business, its assets and liabilities, profit and loss and cash flows. It also facilitates accurate reporting of the financial information about a company to the government, tax and other regulatory authorities.

Liquidity

Many small businesses fail due to the mismanagement of cash. When you are involved in the daily operations of your business, it may be easy to lose sight of the bigger picture. Studying the financial accounting reports will tell you exactly how much liquidity you have. It will also tell you about how much money is owed to you and how much you owe to others. Using this information to manage your commitments reduces the risk of bankruptcy or financial crisis.

Financing

A company that approaches lenders or investors will have to present accurate financial records and projections. Lenders use this information to study the health of the business and decide if it is worth the risk of lending money. Investors can also determine if it is worth investing and also evaluate how well their investment is performing. A company communicates its financial health and builds credibility by presenting accurate and reliable financial accounting reports.

Why is accounting useful for small business owners?

One of the deciding factors between a successful and a failed business venture is proper financial management. Many small businesses fail, especially in the first year on account of poor financial management. When you are a small business owner, you have limited resources and money to work with. Financial accounting helps you for many reasons such as:

  • Manage cash flow: To manage your cash you need to keep track of your money, incoming and outgoing. It is only when you have a grasp of the cash flow in your business that you can plan and strategize well. If you do not record your transactions, you could easily forget what you have paid and what you are owed. You may not have an accurate record of how much profit or loss you made over time.

  • Manage costs: Every business has fixed and variable costs. Cost accounting is essential for you to cost your project and know exactly where your money is going.

  • Health status: Accounting reports give you a clear report on the different aspects of the health of your business.

  • Red flags: Accounting reports make it easier to detect any fraud, embezzlement, or theft within the company. An accounting system’s inbuilt checks and balances make it easy for you to detect any wrongdoing within the company or by suppliers and customers.

  • Empowers you: When you have your financial reports in hand, you can face investors, bankers and lenders with the confidence of being backed up by actual facts and figures. This demonstrates that you as the owner of a business have a complete grasp, control and understanding of your business’ finances. It makes your business more attractive to lenders and investors and good accounting important to your company’s image.

  • Evolve and improve: Time spent poring over your financial records will show you where your business is doing well and also where there is room for improvement. When you are able to tackle bottlenecks and reduce unnecessary expenditure, it improves the efficiency and profitability of the company. Financial reports also give you information to assess if any changes you have made are yielding positive or negative results.

How TallyPrime as an accounting software helps business owners?

You will find accounting important for a small business owner for many reasons:

  • Timesaving: TallyPrime is simple and easy to use, so you save a lot of time that would otherwise be spent manually calculating and extracting reports

  • Instant: You can generate reports easily and quickly to analyse your business

  • Multi-purpose: TallyPrime being an integrated business solution , you manage different
    functions of a business such as accounting, inventory, banking, payroll and much more in one place

  • Productivity: With the flexibility and the multi-tasking capabilities, TallyPrime greatly enhances the productivity and efficiency of accounting personnel.

  • Informed decision making: The automated reports in TallyPrime give your visibility into your business transactions. You can drill down and get to the bottom of any aspect that you need to investigate further. When you rely on accounting to guide your decisions, you can be surer and more confident about them. The best part is, you can personalise the reports the way it works you.

Comparative Profit and Loss statement in TallyPrime

Monthly comparative Profit and loss account in TallyPrime

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Источник: https://tallysolutions.com/business-guides/why-is-accounting-important-for-business/

Accounting Basics for Small Business Owners

As a small business owner, you wear many hats. Unless you outsource it, that includes bookkeeper and accountant. You don’t need a fancy four year accounting degree to handle your business accounting basics, but it is important to have a grasp on important concepts to ensure accurate management reporting and tax filings.

Cash Basis vs. Accrual Basis

The first important accounting decision is your accounting method. For service based businesses, you can choose between cash basis and accrual basis.

Cash basis means all of your accounting books are based on the date that cash moves hands. For example, let’s say  you provide a service on January 1st and get paid of February 1st. The transaction is recorded on the books for February, when the cash changed hands.

Accrual basis means all of your accounting books are based on the date the service is performed. Following the example above, the transaction would be recorded on January 1st, as that is when the service took place.

Doesn’t seem like a big deal? It is a huge deal! While the difference in January 1st and February 1st isn’t dramatic for bookkeeping and tax purposes, those dates could just as easily be December 1st and January 1st, where the difference of cash basis and accrual basis accounting changes the fiscal year the transaction takes place, which impacts your tax filings.

There is no right or wrong here, just what makes the most sense for your business. Typically cash basis is easiest, particularly if you are doing your own books. However, accounting software like Quickbooks makes it easy to manage your books either way.

Product based businesses also have to choose between FIFO and LIFO inventory accounting, but that’s an article for another day.

Debits and Credits

Now that you have your accounting method picked, you have to do the actual accounting. Again, most accounting software like Quickbooks, Xero, and others take care of the heavy lifting. However, you should still understand the concept of debits, credits, and how your general ledger works.

Every time money (or inventory) moves, it should be recorded on the general ledger. The general ledger is a log of every financial transaction in your business’ history. Each transaction has two components, a debit and a credit. Because every entry has two components, this is called double-entry accounting. This article on t-accounting makes it a little easier to understand why each transaction requires two entries.

Create a Transaction Every Times Money Moves (or is Expected to)

Accounts payable (AP) and accounts receivable (AR) are not just processes to track invoices and expenses, they tie directly into your AP and AR accounts on your company’s general ledger.

For example, when you get a bill, don’t just pay it, enter it into your accounting software. That will create a new accounts payable entry that flows into your balance sheet. When you pay the bill, enter it and it moves off of your balance sheet and lowers cash while increase expenses paid.

Doing this consistently helps keep everything organized, in order, and accurate while you are busy running your business and hustling to keep bringing in the cash!

Owner’s Equity and Member Draws

You can’t just pay yourself and not record it in the books. There are a couple of general ledger accounts that are impacted when you put money into the business and take money out.

First, owner’s equity. If you spend money out-of-pocket on the business, that should be recorded and reflected. Startup costs and other expenses should be recorded as expenses. The cash you used to fund those expenses should be recorded in the owner’s equity account.

When you get paid and are operating as a single member LLC or sole proprietorship, that income should be reflected as a member draw, a contra-account to owner’s equity. If you work as an employee, it is even more important to run payroll entries correctly for proper tax reporting at the end of the year.

Clean Books Create Clean Reports

All of these debits and credit and accounts come together to perform two very important business functions.

First, your accounting record sit behind any business reporting you have access to through your bookkeeping software. Profit and loss, balance sheet, cash flow, and other reports that you can use to make the best business decisions possible all rely on accurate bookkeeping. You don’t know where and how you are making and losing money without good management reporting!

Second, your tax preparation relies on your bookkeeping accuracy. Whether you outsource it to an accountant or do it all yourself, having up-to-date books is vital in accurate tax preparation and filings. Doing this wrong can lead to audits and penalties!

If you have any doubt, you can always take an accounting class or hire an accountant. It’s better to be safe than sorry!

Источник: https://due.com/blog/accounting-basics-small-business-owners/

The Importance of Accounting for Small Businesses

Editor’s note: This article contains general information and is not intended as a substitute for professional accounting advice. Please consult an accountant before making any financial decisions.



Accounting is vital for every business. Savvy record-keeping is key for monitoring business expenses and discovering new avenues of growth. In addition, maintaining accurate records ensures that business owners remain responsible for tax obligations to the government and their employees.

As you review your accounting strategy, consider your company’s financial goals. Whether you are a solo entrepreneur or employ staff, your business’ success hinges on clearly stated financial objectives.

Experts agree that small businesses commonly fail when cash flow runs dry. Your business should implement efficient record-keeping policies and a sound financial strategy to avoid this situation.

What Is Small Business Accounting?

Small business accounting requires accurate bookkeeping, which entails maintaining organized records of a business’s financial transactions, including sales, expenses, assets, and liabilities. If this is your first time exploring small business accounting, visit our helpful glossary to become familiar with basic accounting terms.

Bookkeepers commonly work with three types of accounting reports: balance sheets, income statements, and cash flow. Each report records different values and provides unique insight into a business’s financial health. The following section explores the differences between these reports.

Balance sheets measure what a company owns and owes. This type of statement provides a snapshot of a small business’s financial health at a specific point in time. Bookkeepers can view the company’s assets and liability figures at a glance.

Companies typically prepare balance sheets at the end of every quarter, but individuals can prepare them at any time. Assets, liabilities, and shareholders’ equity comprise a balance sheet.

Assets

Assets have economic value and can reduce expenses and improve sales. Examples of assets include real estate, inventory, cash, and accounts receivable. Balance sheets list assets in order of liquidity — how easily they can be sold, consumed, or turned into cash.

Liabilities

A liability is something a company owes to someone else. Examples of liabilities include employee wages, income taxes, mortgage loans, and accounts payable.

Shareholders’ Equity

Shareholders’ equity represents a company’s net worth — the amount shareholders would receive if they liquidated all assets and repaid all debts. Net worth can also be understood as assets minus liabilities. For example, a company with $10,000 in assets and $2,000 in liabilities would have an $8,000 shareholders’ equity.

Income statements, often referred to as profit and loss statements, summarize a small business’s revenues and expenses over a specific period. Companies typically prepare quarterly and annual income statements.

Income statements focus on four key items — revenue, gains, expenses, and losses — which bookkeepers use to calculate net income.

Revenues and Gains

Revenue includes operating and non-operating revenue. Operating revenue makes up a business’s primary activities, like selling products. Businesses obtain non-operating revenue through secondary business activities, like bank account interest.

Gains include money made from one-time, non-business activities, like selling off old equipment or unused buildings.

Expenses and Losses

Like revenue, expenses include costs accrued through primary and secondary business activities. Primary activities include general administrative expenses, research and development, and the cost of goods sold.

Losses include elements like unfavorable lawsuit settlements and assets sold for less than their value.

Net Income

Accountants calculate net income by subtracting a business’s expenses from its revenue. If revenue is higher than expenses, the business gains net profit. If revenue is lower than expenses, the business experiences a net loss.

Cash flow statements summarize the amount of money entering and leaving a company. These statements focus exclusively on liquid assets like cash and cash equivalents — investments that individuals can readily turn into cash.

Accountants calculate cash flow by making adjustments to a business’s income statement. Through addition and subtraction, bookkeepers remove non-cash items and transactions from the net income. Components of a cash flow statement include operating activities, investing activities, and financing activities.

Operating Activities

Operating activities include generating and spending cash for business activities. Businesses consider receipts from sales of goods, bank account interest, payments made to vendors, and wages paid to employees as operating activities.

Investing Activities

Examples of investments include asset sales or purchases, loans made to vendors, and payments related to business acquisitions or mergers.

Financing Activities

Financing activities include generating and spending cash to fund the company, such as paying cash dividends to shareholders, receiving cash from issuing stock, and receiving cash from paying down debt.

What Does a Bookkeeper Do?

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How to Do Accounting for a Small Business

Effectively managing your small business’s finances goes beyond bookkeeping. Using professional accounting methods allows you to properly strategize for your company’s future and meet your legal requirements.

Using professional accounting methods allows you to properly strategize for your company’s future and meet your legal requirements.

At this stage, successful small businesses should consider either outsourcing their accounting needs or investing in accounting software. Each option has its pros and cons, which are outlined in greater detail below.

A Guide to Small Business Taxes

Small Business Accounting Software

Tech-savvy business owners or those familiar with accounting principles typically use accounting software. Digital bookkeeping offers a much quicker method than manual calculations.

These applications automatically crunch numbers, perform data entry, track performance metrics, and produce business reports. After correctly entering your data, the software guarantees accurate calculations, which provides added comfort in tax season.

More advanced versions integrate with other office management programs, display data trends, pay accounts receivables, remit invoices, and ensure that tax requirements are met. Extensive data storage within accounting software increases your company’s efficiency, allowing quick access to details like payment history.

Software Pros

  • Automatic data entry minimizes redundancy
  • Pre-calculated sales tax
  • Cloud-based storage eliminates the need for costly desktop technology in the office
  • User-friendly interface

Software Cons

  • Security is riskier within cloud-based services
  • Often packaged as subscription services that charge for annual updates
  • Dependent on tech support from outside sources
  • Costs can be high, especially for a desktop-based installation

Some software targets small business accounting professionals or bookkeepers, while other programs tailor to business owners looking to develop their accounting skills.

Companies with little or no inventory and few employees can use inexpensive or free basic accounting software. While business owners can easily implement this affordable software, it may leave you at risk of an IRS audit triggered by inaccurate reporting.

Popular accounting programs for small businesses include:

Review Small Business Resources

Accountants for Small Businesses

In some cases, small business owners may prefer hiring sole practitioners or accounting services firms that specialize in small businesses. Other businesses hire temporary accounting staff at certain times of the year or hire part-time bookkeeping employees with advanced training.

For a business owner who lacks accounting skills or dislikes crunching numbers, outsourcing the company’s financial information offers an attractive option. Many business owners find comfort in an accountant’s financial expertise and tax knowledge. A qualified accountant can also assist outside of managing day-to-day finances. For example:

  • Advising on how best to structure a company before launching
  • Consulting on the financial details of your business plan
  • Identifying potential cost savings in operations
  • Managing payroll
  • Developing a financial safety net in case of catastrophic events or struggling growth
  • Liaising with the IRS in the event of an audit

Though many small businesses begin with the owner as the sole employee, it eventually becomes advantageous to hand over accounting functions to a professional. In this situation, businesses may choose to hire inside or outside accountants in accounting firms.

For younger, growing businesses, using an accounting firm offers some flexibility. Keeping a firm on retainer for consultation helps businesses that need their expertise a few times per year.

This less expensive option still delivers high-level accounting expertise. Accounting firms generally charge by the hour, though some analytic functions cost more than others. If you are unsure, weigh the initial costs against what a firm can save your company over time.

Accountant Pros

  • CPAs are licensed trusted advisors.
  • Professionals possess crucial tax law knowledge.
  • Accountants can provide IRS audit assistance.
  • Accountants can assist in business growth strategy development.

Accountant Cons

  • Hourly rates are costly.
  • Most of your company’s financial knowledge lies with one person, which is risky.
  • Hiring an accountant can lead to a lack of control over daily transactions.
  • Accounting services may be provided outside of the office.

Some may find choosing an accounting services provider just as daunting as keeping your own books. Most small business owners know the Big Four names in accounting:

  • PricewaterhouseCoopers
  • Deloitte Touche Tohmatsu
  • Ernst & Young
  • KPMG

These firms are established and well-staffed with qualified CPAs. However, their large size leads some small business owners to prefer smaller accounting firms that will not lose them among their larger clients. Smaller firms are generally much less expensive and can provide face-to-face service.

For established businesses, accounting firms’ hourly rates can become exorbitant as transactions become more complex. In this case, it may make more sense to hire an in-house accountant.

Learn the Role of a CPA

Choosing Your Accounting Solution

Having a dependable, efficient accounting system can free up your time to focus on other business tasks. As you explore accounting solutions for your company, consider the following questions:

  • What is the size of my company?
  • What accounting technology best serves my company?
  • Is my understanding of basic accounting up to the task?
  • Does my cash flow allow for accounting expenditures on a monthly or annual basis?
  • How comfortable am I handing over sensitive business data to an individual or accounting service?
  • Is daily data entry something that my staff or I can reasonably accomplish?
  • Does my company operate in a complex tax environment that may be subject to audit?
  • Do my industry competitors find a particular method to be most useful?
  • Are there compatibility factors to consider with other technological processes that regularly occur, like payroll?

Your answers to the questions above will help you decide on the most sensible options for your small business. Then, you can get back to doing what you love with confidence in your financial future.

Small Business Accounting FAQs

  • How do I do accounting for a small business?

    Small business accounting typically involves three key reports: the balance sheet, income statement, and cash flow statement. Companies perform accounting tasks manually, with accounting software, or through professional accounting services.

  • What are accounting best practices for small businesses?

    Key accounting best practices for small businesses include keeping businesses’ finances separate from personal finances, maintaining accurate records, and tracking income and expenses. Small businesses may also want to consider hiring professional accountants or automating their finances with accounting software.

  • What is the most commonly used accounting software?

    Common accounting programs for small businesses include QuickBooks, Xero, and FreshBooks. Each platform offers powerful features for small business owners, including bookkeeping tools, point-of-sale functions, and mobile apps.

  • Does my small business need a CPA?

    Many sole proprietors get by without accountants. However, working with a CPA offers many benefits for LLCs and corporations. CPAs can analyze bookkeeping records, help with payroll and taxes, offer financial consulting, and represent you during IRS audits.

  • Should I hire an inside or outside accountant?

    It depends on the size of your business and the complexity of its operations. Outside accountant costs typically increase with the size of the business. At some point, hiring a professional to handle in-house accounting may offer cost savings in the long run.


Reviewed by:

Portrait of Lizzette Matos, CPA

Lizzette Matos, CPA

Lizzette Matos is a certified public accountant in New York state. She earned a bachelor of science in finance and accounting from New York University.

Lizzette began her career at Ernst & Young, where she audited a diverse set of companies, primarily in consumer products and media and entertainment. She has worked in the private industry as an accountant for law firms and ITOCHU Corporation, an international conglomerate that manages over 20 subsidiaries and affiliates. Lizzette stays up to date on changes in the accounting industry through educational courses.

She is a paid member of Red Ventures Education’s freelance review network.


Feature Image: andresr / E+ / Getty Images

Источник: https://www.accounting.com/resources/accounting-basics-small-business/

Step-by-Step Accounting for Small Business

By David Ingram

Small business accounting helps entrepreneurs to manage company finances.

Small business owners take on a range of responsibilities that are handled by specialized departments in larger companies. Accounting is often one of these functions, especially in the startup phase. Although accounting may seem daunting at first, taking small business accounting step by step can help to simplify the process, ensuring that your company's finances are managed and monitored effectively.

Set up your company's accounts. Choose which accounting methods you will use -- whether you will use the cash or accrual basis, and whether you will use a single- or double-entry system. Establish your accounting cycle; begin your fiscal year on Jan. 1] or establish your own fiscal year start-date.

Collect all financial documentation from all company outlets, and bring all documents together in the accounting department in a timely manner and on a regular basis. Financial documents include anything that records an inflow or outflow of cash, assets or liabilities. Examples include sales receipts, supplier invoices, credit card account statements, refund slips and cash register tapes.

Record all company transactions, using information from your financial documents, in the company's accounts. Post all sales to income accounts, and all cash outflows to expense accounts, for example. Update accounts receivable and payable records using your sales information and credit account statements.

Reconcile internal accounts to external records on a regular basis. Compare your records against bank statements, suppliers' records and financial audit results to ensure that your accounting system remains accurate.

Compile financial statements on a regular basis for lenders, investors or government authorities if you are an incorporated business. Create a balance sheet, income statement and statement of cash flows to aggregate data in your accounting system and present it in a way that facilitates strategic decision-making. Use a small business accounting software package, such as Quickbooks, to help you organize your accounts, as these packages can quickly compile and print financial statements for you.

Compile internal reports for yourself and your managers, and perform ratio analysis on financial statement items to gain insight into your company's true performance. You can create a report on virtually any aspect of your finances. Examples include a report showing the trend in the ratio of debt to assets and a report revealing which areas of operations' costs are increasing at the highest rates.

Calculate financial ratios on income statement items by comparing specific balance sheet and income statement items against each other (See Resources).

References

Resources

Writer Bio

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.

Источник: https://smallbusiness.chron.com/step-by-step-accounting-small-business-4905.html

Accounting Basics for Your Small Business

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To make and keep your business successful, you’ll need to have a good grasp of accounting basics.

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Accounting is a necessary part of running a company. Business accounting is the practice of recording, analyzing, and reporting your business’s performance and financial status. Good accounting and bookkeeping practices are essential not only to knowing the financial state of your business, but also to staying legally compliant and making sound business decisions. Although this may seem overwhelming, you don’t have to be a certified public accountant (CPA) to understand the accounting basics that will help with your business’s success. 

Basic Accounting Terms

There are some terms that small business owners need to know to understand the basics of accounting. 

  • Accounts receivable: This is money owed to your business for services or goods that has not been collected. These are reflected as assets on your balance sheet. 
  • Accounts payable: This is money your business owes and is a liability on your balance sheet.
  • Assets: These are everything your business owns that has monetary value. Assets can be tangible, like equipment, land, or cash, or intangible, like stocks and patents.
  • Break-even point: A business’s break-even point is when total costs equal total revenue. At this point, there is no loss or gain for the business. 
  • Capital: Capital is a type of asset that provides an ongoing service to your business. For example, cash, facilities, software, or a brand name are all types of capital.
  • Cash flow: Cash flow is the amount of money going in and out of your business. 
  • Credit: Credits are everything flowing out of your business, so they increase a liability or equity account or decrease an asset or expense account.
  • Debit: Debits are everything flowing into your business, so they increase asset or expense accounts and decrease liability, revenue, or equity accounts. 
  • Depreciation: This is the decrease in an asset’s value over time. 
  • Expenses: These are the costs of doing business. Expenses fall into two different categories: cost of goods sold (COGS) and operating expenses. COGS are the direct costs of producing your services or products. Operating expenses are the indirect costs, such as property taxes or accounting fees. 
  • Gross and net margin: Gross margin is the amount of money your business has after deducting COGS. The equation is gross profit divided by revenue. Net margin is the net profit after all your expenses are taken into account. Your net margin shows your business’s profitability.
  • Gross profit: Gross profit is your business’s revenue less COGS. In other words, take the money your business makes and subtract from it the costs of producing the good or service sold. 
  • Income statement: This is a financial document of a company that shows the business’s net profits and losses over a period of time.
  • Inventory: Inventory is a type of asset. It’s the products you have for sale and the materials used to produce them. 
  • Liabilities: Liabilities are everything your business owes, such as money or services. 
  • Liquidity: Liquidity is all about measuring the ability to turn an asset into cash. If a company has a lot of liquidity, that means its assets can easily be sold for cash without much disruption to the business. 
  • Net profit: Net profit is your gross profit less all other expenses. Sometimes net profit is referred to as net earnings, net income, or your bottom line. 
  • Revenue: Revenue is the money your business makes from selling its products or services. This doesn’t include any expenses, but is only the money made. 
  • Valuation: Valuation is the process of determining the present value of an asset or an entire company.

Once you understand all these terms, you can start creating a balance sheet and managing your business accounts.

How to Create a Balance Sheet

A balance sheet is a snapshot of your business’s financial health at a single point in time. These are useful documents because they can show your business’s net worth and liquidity by comparing your current assets and liabilities. This information is useful to investors, banks and financial institutions, third-party suppliers, customers, and regulators, such as government agencies or stock market regulators.

A balance sheet will show your business’s assets, liabilities, and equity. The foundational equation for a balance sheet is:

Assets = Equity + Liabilities

Remember from our definitions above that assets are everything your business owns and liabilities are everything your business owes. Equity is the company’s value after all liabilities are deducted, and it’s the portion of the company owned by the business owners or shareholders. 

To produce a balance sheet, create two sections and list all assets on one side and all liabilities and equity on the other. You then compare the total amount of assets to the total liabilities plus equity and see if the numbers are in balance. 

How to Do a Cost-Benefit Analysis

A cost-benefit analysis (CBA) is an evaluation process that measures the benefits against the costs of a decision.

To do a CBA, tally up all the costs of a decision and subtract that number from the estimated benefits of the decision. If the benefits are greater than the costs, arguably this is a good business decision. If the costs outweigh the benefits, it may not be a sound decision.

There are four basic steps to a CBA. 

  1. Determine the framework for your CBA — what are your goals or objectives for the decision?  
  2. Identify your costs and benefits — create two lists, one with projected costs and one with estimated benefits of the decision.
  3. Assign a value to each cost and benefit — each cost and benefit needs a dollar amount for you to accurately compare the two. 
  4. Add up the total values and compare — after you’ve assigned a dollar amount to the costs and benefits, tally up each list and compare the numbers. Remember to circle back to the goals for your decision. 

By conducting a CBA, you may discover costs and benefits that you wouldn’t otherwise have considered had you not sat down and gone through them all. While it may be difficult to make predictions about estimated benefits or to assign dollar amounts to intangible costs, it’s still worth the effort, and there are methods and software available to help determine values.

Methods of Accounting

An accounting method is a set of rules used to decide when and how to report your business’s income and expenses. The two main types of accounting methods are cash accounting and accrual accounting. Some businesses are required to use the accrual method, so it’s important to check with the IRS before selecting your accounting method. 

Accrual Accounting

Under the accrual accounting method, you record and recognize transactions in your books once the sale is complete, even if you haven’t been paid. 

The accrual method is common because it provides a more accurate representation of a business’s true profit by recording revenues and expenses at the time of the transaction. This method can also potentially reduce your tax burdens. Since expenses are accounted for at the time they are realized, you may be able to deduct some expenses before actually paying them.

On the other hand, the accrual method isn’t as simple as the cash method. The calculations are more difficult, and there are more rules and regulations. If you get a calculation wrong, you may be left with an inaccurate picture of your business’s financial state.

Cash Accounting

Under the cash accounting method, you record transactions only once you receive payment. 

The cash accounting method is more straightforward and easier to understand than accrual accounting. It gives you a clear picture of the actual cash your business has on hand. There are no future estimations used in cash accounting. 

A major disadvantage with cash accounting is that you don’t see the full picture of your business. Since you don’t include liabilities with this method, it may appear you have more cash than you actually do. There are also some restrictions set by the IRS on who can use the cash accounting method. 

What is GAAP?

There are different ways to create your business’s financial statements. The generally accepted accounting principles (GAAP) are a set of rules, regulations, and guidelines that standardize the financial reporting process. The goal of GAAP is to create consistent and transparent financial reporting across companies.  

The organization that oversees GAAP is the Financial Accounting Standards Board (FASB).

GAAP is required for all publicly traded and regulated companies. Even if your business isn’t required to use GAAP, it’s still useful. Under GAAP, you use the accrual method of accounting, so you have more accurate profit and loss reporting and a more realistic forecast of your projected revenues and expenses. Ultimately, GAAP can help generate financial statements that are accurate, complete, and comparable. 

Bookkeeping for Your Business

Bookkeeping is a part of accounting, but they’re not the same. Bookkeeping is regular recordation and organization of a business’s financial transactions. Accounting encompasses more and is the process of recording, analyzing, and reporting financial information. Accurate bookkeeping is essential to understanding your company’s financial position and gives you the information to make sound business decisions. 

There are some basic steps for keeping good books for your business.

Understand Your Business Accounts

We’re not talking about bank accounts, but rather your accounts for assets, liabilities, income, expenses, and equity. You need to be able to record each transaction in the appropriate account.  

Create a Tracking System

Have a system in place to track and organize each account through the use of a ledger. A ledger is a centralized place to collect and record all account data — for example, a book or bookkeeping software. 

Choose a bookkeeping method

Your bookkeeping method can be either single-entry bookkeeping or double-entry bookkeeping. Single-entry is when you enter each transaction only once in one account. With double-entry bookkeeping, you record the transaction twice: once as a debit and once as a credit. This keeps your books in balance.

Keep documentation of every transaction

It’s important to keep records of all your transactions. This can be a receipt, invoice, purchase order, or some other type of financial record of the transaction.

Periodically balance your books

Whether it be weekly, monthly, or quarterly, look at your debits and credits to see that the totals match.

Get the help you need

While you can do your own bookkeeping, you also have the option of using a bookkeeping software, hiring your own bookkeeper, or outsourcing the task to an accounting service. 

Business Credit

Business credit is a company’s ability to obtain financing. Having credit allows your business to 

purchase what it needs to operate, such as products or services. 

Dun & Broadsheet, Inc. 

Dun & Bradstreet, Inc. (D&B) is a corporation that provides data on companies and uses that information to create commercial credit reports.  

It’s important to find out whether you have a business credit profile with D&B because one can be created without you knowing. For example, if you have overdue invoices, the vendor could report this to D&B establishing an unfavorable file for your business. Lenders often look at D&B reports to determine your business’s eligibility for financing.  To know if you have a credit profile, visit D&B’s website and search with your company’s information to see if your business is listed.

How to establish and maintain good business credit

To create business credit, you first need to establish your business as an independent legal entity, such as a corporation or limited liability company (LLC). The next step is to apply for a tax identification number, also known as an Employer ID Number (EIN), which is essentially a social security number for your business. Once these steps are complete, you can apply for business credit.  

To maintain good credit, fulfill all business obligations on time and regularly monitor your business credit reports and scores for accurate reporting.  

Your business credit reports not only impact your ability to obtain financing, but they can also affect your interest rates, payment terms, and insurance premiums. Other parties can pay to access your credit reports without you even knowing, so you want to check that they’re accurate and up to date.  

The most commonly used business credit agencies are D&B and Equifax. If you already have a credit file with the agency, you will know by doing a search for your business on their website. From there you can order a business credit report to review. If you don’t have a file yet, you can open one by applying for a Data Universal Number System (DUNS) number through D&B. A DUNS number is a nine-digit identification number assigned to your business. This will open up a credit file with D&B. 

How to check the business credit of clients and vendors

Just as you can use D&B or Equifax to check your own credit report, you can also use those agencies to request the credit report of a potential client or vendor. Depending on which credit report service you choose, you may need to pay a fee.  

Focus on the Basics

While accounting may seem like an overwhelming task, it’s necessary to the success of your business. Having an understanding of the accounting basics will hopefully help you decide if you need to bring in the professionals. There are plenty of resources available, such as software programs or hiring bookkeepers and accountants.  

When you use ZenBusiness to form a corporation or LLC, you will receive a free accounting consultation with one of our experts. We provide recommendations on your accounting, bookkeeping, and tax needs during your first year of business. Let us help you get your business off on the right foot, so you can grow with confidence.

Accounting Basics FAQs

  1. Should I hire an accountant for my small business?

    While it’s possible for you to do your own accounting, the expertise and skills of an accountant can be incredibly beneficial as your company grows. Accountants are trained in the best accounting practices and procedures and can analyze financial data. These professionals can also develop financial strategies and produce detailed financial reports.

  2. How much time do small business owners spend on bookkeeping?

    According to the latest survey by the National Small Business Administration (NSBA), small business owners spent more than 40 hours per year preparing and filing federal taxes.

  3. How much does it cost to hire an accountant?

    The cost of an accountant varies based on their experience and the work you’re asking them to do.

  4. What is the best accounting method for a small business?

    Small business owners typically choose the cash method of accounting because of its simplicity. Businesses that have inventory for sale to customers must generally use an accrual method for sales and purchases. However, small business taxpayers with gross receipts of less than $25 million a year may use a cash method for sales and purchases.

    For those who choose or are required to use the accrual method, keep in mind that there are software programs that can help you with this more tedious method of accounting.

  5. Should I have a separate bank account for my business?

    Commingling personal and business funds can be a nightmare come tax time. Having to go through and decipher which transactions were for yourself and which were for your business can be a painstaking and time-consuming task. The IRS actually recommends that small business owners open a separate bank account, even if they’re not required to.

Источник: https://www.zenbusiness.com/accounting/

Accounting software can be your secret weapon when it comes to managing your small business finances. Think of the software as your assistant, helping you track cash flow, revenue, and expenses. But if you’re budget-conscious, you probably don’t want to overspend on software loaded with bells and whistles you’ll never use.

The good news is that several decent accounting programs out there are free for the taking. It’s just a matter of choosing the most suitable one for your small business’s financial needs.

How can accounting software be free?

When you think of accounting software, names like QuickBooks, Excel, and Peachtree probably come to mind. But these packages can command a pretty hefty price tag and come with features that may be too complicated for a small business owner doing their own accounting off the side of their desk.

If you’re not ready to pay for features you won’t use, many companies offer free accounting and bookkeeping software that can be a good fit for your small business. These free programs contain useful features without the high-level add-ons of their pricey big brothers. Without the advanced features, there is no need for complex, expensive program development.

Another reason some companies freely distribute the software is because it is open-sourced, meaning any developer can customize it any way they see fit. The license for open-sourced software specifically states that it must remain free for every user.

Top free accounting software for small business owners

If you decide to take on your accounting duties, there are several suitable free software options to choose from. We’ve done the research for you, and here are our top seven free accounting software packages.

  • GnuCash: no frills, plenty of features
  • Wave: powerful and cloud-based for anywhere, anytime access
  • ZipBooks: great if you’re new to accounting
  • CloudBooks: unlimited users, limited free invoicing
  • Zoho Books: cloud-based, single-user platform with many features
  • Akaunting: open-source software
  • Brightbook: web-based with powerful tools and features

Read on for our breakdown of the best free accounting software for your small business finances.

Note: All software options are compatible with Windows and Mac computers. Several are also cloud-based and compatible with mobile devices where indicated in the description.

GnuCash: no-frills but plenty of features

GnuCash is an open-source accounting program that offers many features to help you manage your small business accounting. Volunteer developers update the software regularly, which means the program is always kept up-to-date.

GnuCash pros

GnuCash’s strength is that it contains advanced features such as customer and vendor tracking, job assignments, invoicing, bill pay, sales tax management, payroll management, and budget creation and management.

The checkbook-style register is an easy-to-use interface for entering all of your checking and credit card transactions. You can also enter income, stock, and currency transactions.

You can split transactions, mark transactions as canceled or reconciled, autofill entered transactions, and display multiple accounts in a single register window.

GnuCash cons

Since GnuCash is not cloud-based and only locally installed on a desktop computer, access to your financial data is limited to only one machine and one user. While GnuCash offers a mobile app, it is only for Android-based devices and requires you to manually import the data, which can be a pretty tedious process.

The interface of the program is also a bit dated and requires some time to get used to. Many users report problems with manually importing their transactions.

GnuCash’s customer support is through a public email-based discussion board, so it may take a while before you get a response to your question. Their chat support uses an obsolete IRC channel system, which can be tedious to set up.

Wave Accounting: powerful and cloud-based for anywhere, anytime access

Wave Accounting checks all the boxes for many powerful features that are well-suited for your small business.

Wave Accounting pros

One of Wave’s most powerful features is that it’s cloud-based, which means real-time access and instant updates from anywhere. Your information is stored and backed up on highly secured servers.

Wave also includes unlimited and customizable income and expense tracking, receipt scanning, invoicing, and a smart dashboard for easy viewing.

Wave offers unlimited bank and credit card account connections, and there’s no charge if you want guests to sign in and collaborate on the financials with you. If you need someone else, like your accountant or another member of your financial team, to log in and check the numbers, relax: there’s no limit to the number of users you can add.

Wave has a robust Help Center for self-service support, and they also provide email support for all invoicing and accounting questions related to their free features.

Wave Accounting cons

While Wave allows you to track accounts receivable (aka any money your customers owe you), it doesn’t allow you to track accounts payable (meaning the money you owe your suppliers or creditors). Wave also does not offer inventory management.

And while all of Wave’s basic features are free, there is a per-transaction credit card processing fee of 2.9% plus .30 for Visa, Mastercard, and Discover and 3.4% plus .30 for American Express.

Wave’s payroll application is available at $20 or $35 a month, depending on which state your business is located in.

Live chat support is only available for paid features. If you’d like to speak to an expert about your bookkeeping questions, you’ll have to purchase it from their Wave Advisors.

ZipBooks: one of the best options if you’re new to accounting

ZipBooks is a powerful yet simple web-based program that is useful for streamlining your small business accounting.

ZipBooks pros

ZipBooks allows you to send unlimited invoices in multiple currencies. The software’s vendor tracking and expense management capabilities are right up there with several other free competitors. The free starter plan comes with multi-currency payment acceptance, separate records for 1099 expenses and payments, receipt tracking, and a chart of accounts.

ZipBooks is cloud-based, so you can use it on the go from any mobile device. An app is currently unavailable as new features are in development. However, you can use your device’s browser to access ZipBooks. The program uses 256-bit SSL encryption to keep your data secure.

ZipBooks allows you to toggle between cash and accrual accounting, while most other programs only let you choose one or the other.

ZipBooks cons

The free version only allows you to connect one bank account and view basic reports. If you need multiple accounts and additional team members added, it will set you back $15 a month or more.

The free plan only lets you generate a balance sheet and profit and loss statement. Additional financial statements can set you back as much as $35 a month as part of ZipBook’s Sophisticated plan.

The only support that we found was a self-service Knowledge Base with articles and tutorials. ZipBooks does have an active community of users on Facebook and Twitter that may be of some help if you run into problems.

CloudBooks: unlimited users, restricted invoicing for free

While CloudBooks’ basic features are free, it doesn’t offer as much as the competition.

CloudBooks pros

CloudBooks is an online accounting software program that allows you to manage your online invoices, expenses, and projects. You can also view financial reports from any mobile device with their free app. Their platform allows for unlimited staff users, which means you can share access to your books as needed.

CloudBooks cons

CloudBooks is generally geared towards freelancers with few clients. Unless you are willing to shell out $10-$20 a month, you are limited to only five unbranded invoices per month. There is also no phone support or Paypal integration for the free version.

Zoho Books: cloud-based, single-user platform with many features

Zoho Books offers a free plan for small businesses that need help invoicing customers and managing payments with a single account.

Zoho Books pros

The free version of Zoho Books includes up to 1,000 customizable, branded invoices per year. The user-friendly software also features contact management, expense tracking, multiple bank and credit card accounts, and the ability to import bank and credit card statements.

A useful client portal allows you to share recent transactions and allow clients to make bulk payments. You can also set up recurring invoices and automatic payment reminders.

The client portal even allows you to capture customer satisfaction feedback to share on social media, leveraging that all-powerful social proof to build your brand.

Zoho Books cons

The biggest drawback to Zoho Books? It’s only for businesses with less than $50K in annual revenue. Only one user and one accountant can access the program, unless you pay monthly for one of their subscription packages.

Only email support is available in the free version, while the paid versions use voice and chat.

Akaunting: great open-source software to manage your cash flow

Akaunting is an accounting solution that is completely online and has all the features you need to manage your small business’s financials. Akaunting is open-source, which means it has a large library of add-ons you can use to customize the software to suit your needs.

Akaunting pros

Akaunting’s easy-to-use interface is mobile and tablet-friendly. The cloud-based option allows you to access and update your financial information from any location on your device.

The software allows you to create and schedule recurring invoices, revenues, bills, and payments for continuous jobs. Akaunting also includes detailed financial reports.

A client portal is also available to share transactions and invoices with your clients and accept online payments. You can even set your clients up with a sign-in to access information.

Akaunting allows an unlimited number of bank and cash accounts. You can easily add deposits and make transfers between all accounts. The ability to add non-billable expenses as payments helps to keep the account balances up-to-date.

Akaunting cons

While Akaunting is one of the more customizable accounting options available, you may need to invest in some pricey apps available through Akaunting’s app store to get the most out of the program.

Free support is only available through the community forums, and dedicated support requires an expensive subscription plan. The support ticket system is only for users who purchased an app from their App Store.

Brightbook: web-based with powerful tools and features

Brightbook certainly lives up to its name with its colorful website. Advertising as the “world’s most loved free accounting system,” Brightbook’s cloud-based software lets you access it anywhere with an internet connection.

Brightbook pros

Brightbook is a great alternative to the paid accounting programs with unlimited user access, expense tracking and recording, bank statement processing, and auto-generated profit and loss reporting. Tax reporting is also available to track what you paid in taxes and how much you will get back. Another plus is that Brightbook has no optional, expensive additions to consider. What you see is what you get without any hidden fees.

Brightbook also links to Paypal, allowing your clients to pay you online. You can invoice a client in any currency, and the program will automatically convert it back to your home country’s currency.

Since it is cloud-based, Brightbook lets you monitor and track your financials in real-time from anywhere. While there is no dedicated mobile app to access the program, you can use any mobile browser to view and update your data.

Brightbook’s invoice templates allow you to email invoices straight to clients without leaving the site. You can also view bills and expenses in a list or a more eye-pleasing gallery view. If you have other companies, Brightbook allows you to access them under one login.

Brightbook cons

Unlike some of their other free competitors, Brightbook can’t perform double-entry accounting. There are also no third-party integrations available. While the program can be accessed from a mobile device browser, it requires more steps without a dedicated mobile app. Support is available only through web-based email.

Limitations of free small business accounting software

Free accounting software options have many features that can help you manage your business financials. However, before you dive headfirst into one of the freebies, consider a few of the drawbacks of using free accounting software.

The first problem is that the software is not scalable. As your business continues to expand, free software will likely be unable to keep pace with your growth. Once that happens, you have to invest in an expensive accounting system that can handle the financial reporting needs of your larger business.

If you decide to upgrade, it’s not always easy to migrate your financial data to the new platform. Manually inputting months or even years of financial information means a lot of data entry and wasted time on your part. If you can’t migrate the data, you will have to have your accounting information spread across two different systems.

Another pitfall with free small business accounting software is that their algorithms, or problem-solving formulas, may be more error-prone. You will need to take more time to generate and review reports to make sure the numbers add up.

Valuable accounting features you will miss

If you decide to go with one of the free small business accounting software platforms, be sure to double-check that the free version has everything you need for your financial recordkeeping. Many of these packages have decreased functionality or force you to pay extra for necessary features. Free small business accounting software will not include:

  • In-depth financial reports: Many free accounting packages offer the basic profit and loss statements, but that’s where it ends. That is, unless you are willing to upgrade to a paid subscription plan, which defeats the purpose of the free software.

  • Payroll services: You will end up paying extra if you need payroll processing since the free packages do not include this feature.

  • Lack of quality support: If you are knee-deep in expense accounting and you come across an issue, immediate support is almost impossible to come by. There is usually only email support or trying to find help from a community-based message board.

  • User limits: Free accounting software limits how many users are on the account. That can really put a crimp in things if you need additional team members, like your accountant, to access the financials.

  • Lack of third-party integration: One of the most useful features in accounting software is integration with other programs and apps. Unfortunately, many free programs don’t have this feature or charge extra for their own integrated apps.

Is it worthwhile to do your own accounting?

With free software available, you may have visions of saving big bucks since you won’t need an accountant. But doing your own financials can affect your business in other ways.

Wearing the accounting hat means spending more of your valuable time tracking and analyzing your business’s expenses. That’s time away from your current customers, who depend on you for information and resolving any problems with their orders. It’s also more time away from drumming up more business and continuing your future growth.

You will also have to learn your way around the new software. This may take even more time, especially if you are unfamiliar with accounting fundamentals.

An accounting software program is also only as good as the data entered into it. That means there’s always the possibility of user error. Free software is not a replacement for an experienced accounting professional.

These errors can come back to haunt you at tax time, which could result in a pretty stressful, time-consuming audit. If that should happen, you have no one to represent you to face the fire. An accounting professional will make sure your business is compliant with IRS regulations.

When you’re deciding how to manage your business finances, be sure to weigh each option carefully. It’s not all about saving a few dollars on accountant fees, but rather the risk of losing valuable time to help your customers.

How Bench can help

While there are many free small business accounting software options, in the end, you’ll still pay the price in the form of lost time or costly additional features.

Instead of paying extra for à la carte features to add to an incomplete program or worrying about inaccurate data and valuable time lost, you could always outsource your bookkeeping and accounting. That’s where Bench comes in.

Our team of small business financial experts can save you from the headaches and stress of doing your own books. Our powerful financial reporting, dedicated bookkeepers, one-on-one support, and tax experts offer the insights you need to make sure your small business is headed in the right direction.

Further reading:

Источник: https://bench.co/blog/accounting/free-small-business-accounting-software/

Accounting software can be your secret weapon when it comes to managing your small business finances. Think of the software as your assistant, helping you track cash flow, revenue, and expenses. But if you’re budget-conscious, you probably don’t want to overspend on software loaded with bells and whistles you’ll never use.

The good news is that several decent accounting programs out there are free for the taking. It’s just a matter of choosing the most suitable one for your small business’s financial needs.

How can accounting software be free?

When you think of accounting software, names like QuickBooks, Excel, and Peachtree probably come to mind. But these packages can command a pretty hefty price tag and come with features that may be too complicated for a small business owner doing their own accounting off the side of their desk.

If you’re not ready to pay for features you won’t use, many companies offer free accounting and bookkeeping software that can be a good fit for your small business. These free programs contain useful features without the high-level add-ons of their pricey big brothers. Without the advanced features, there is no need for complex, expensive program development.

Another reason some companies freely distribute the software is because it is open-sourced, meaning any developer can customize it any way they see fit. The license for open-sourced software specifically states that it must remain free for every user.

Top free accounting software for small business owners

If you decide to take on your accounting duties, there are several suitable free software options to choose from. We’ve done the research for you, and here are our top seven free accounting software packages.

  • GnuCash: no frills, accounting for small business owners of features
  • Wave: powerful and cloud-based for anywhere, anytime access
  • ZipBooks: great if you’re new to accounting
  • CloudBooks: unlimited users, limited free invoicing
  • Zoho Books: cloud-based, single-user platform with many features
  • Akaunting: open-source software
  • Brightbook: web-based with powerful tools and features

Read on for our breakdown of the best free accounting software for your small business finances.

Note: All software options are compatible with Windows and Mac computers. Several are also cloud-based and compatible with mobile devices where indicated in the description.

GnuCash: no-frills but plenty of features

GnuCash is an open-source accounting program that offers many features to help you manage your small business accounting. Volunteer developers update the software regularly, which means the program is always kept up-to-date.

GnuCash pros

GnuCash’s strength is that it contains advanced features such as customer and vendor tracking, job assignments, invoicing, bill pay, sales tax management, payroll management, and budget creation and management.

The checkbook-style register is an easy-to-use interface for entering all of your checking and credit card transactions. You can also enter income, stock, and currency transactions.

You can split transactions, mark transactions as canceled or reconciled, autofill entered transactions, and display multiple accounts in a single register window.

GnuCash cons

Since GnuCash is not cloud-based and only locally installed on a desktop computer, access to your financial data is limited to only one machine and one user. While GnuCash offers a mobile app, it is only for Android-based devices and requires you to manually import the data, which can be a pretty tedious process.

The interface of the program is also a bit dated and requires some time to get used to. Many users report problems with manually importing their transactions.

GnuCash’s customer support is through a public email-based discussion board, so it may take a while before you get a response to your question. Their chat support uses an obsolete IRC channel system, which can be tedious to set up.

Wave Accounting: powerful and cloud-based for anywhere, anytime access

Wave Accounting checks all the boxes for many powerful features that are well-suited for your small business.

Wave Accounting pros

One of Wave’s most powerful features is that it’s cloud-based, which means real-time access and instant updates from anywhere. Your information is stored and backed up on highly secured servers.

Wave also includes unlimited and customizable income and expense tracking, receipt scanning, invoicing, and a smart dashboard for easy viewing.

Wave offers unlimited bank and credit card account connections, and there’s no charge if you want guests to sign in and collaborate on the financials with you. If you need someone else, like your accountant or another member of your financial team, to log in and check the numbers, relax: there’s no limit to the number of users you can add.

Wave has a robust Help Center for self-service support, and they also provide email support for all invoicing and accounting questions related to their free features.

Wave Accounting cons

While Wave allows you to track accounts receivable (aka any money your customers owe you), it doesn’t accounting for small business owners you to track accounts payable (meaning the money you owe your suppliers or creditors). Wave also does not offer inventory management.

And while all of Wave’s basic features are free, there is a per-transaction credit card processing fee of 2.9% plus .30 for Visa, Mastercard, and Discover and 3.4% plus .30 for American Express.

Wave’s payroll application is available at $20 or $35 a month, depending on which state your business is located in.

Live chat support is only available for paid features. If you’d like to speak to an expert about your bookkeeping questions, you’ll have to purchase it from their Wave Advisors.

ZipBooks: one of the best options if you’re new to accounting

ZipBooks is a powerful yet simple web-based program that is useful for streamlining your small business accounting.

ZipBooks pros

ZipBooks allows you to send unlimited invoices in multiple currencies. The software’s vendor tracking and expense management capabilities are right up there with several other free competitors. The free starter plan comes with multi-currency payment acceptance, separate records for 1099 expenses and payments, receipt tracking, and a chart of accounts.

ZipBooks is cloud-based, so you can use it on the go from any mobile device. An app is currently unavailable as new features are in development. However, you can use your device’s browser to access ZipBooks. The program uses 256-bit SSL encryption to keep your data secure.

ZipBooks allows you to toggle between cash and accrual accounting, while most other programs only let you choose one or the other.

ZipBooks cons

The free version only allows you to connect one bank account and view basic reports. If you need multiple accounts and additional team members added, it will set you back $15 a month or more.

The free plan only lets you generate a balance sheet and profit and loss statement. Additional financial statements can set you back as much as $35 a month as part of ZipBook’s Sophisticated plan.

The only support that we found was a self-service Knowledge Base with articles and tutorials. ZipBooks does have an active community of users on Facebook and Twitter that may be of some help if you run into problems.

CloudBooks: unlimited users, restricted invoicing for free

While CloudBooks’ basic features are free, it doesn’t offer as much as the competition.

CloudBooks pros

CloudBooks is an online accounting software program that allows you to manage your online invoices, expenses, and projects. You can also view financial reports from any mobile device with their free app. Their platform allows for unlimited staff users, which means you can share access to your books as needed.

CloudBooks cons

CloudBooks is generally geared towards freelancers with few clients. Unless you are willing to shell out $10-$20 a month, you are limited to only five unbranded invoices per month. There is also no phone support or Paypal integration for the free version.

Zoho Books: cloud-based, accounting for small business owners platform with many features

Zoho Books offers a free plan for small businesses that need help invoicing customers and managing payments with a single account.

Zoho Books pros

The free version of Zoho Books includes up to 1,000 customizable, branded invoices per year. The user-friendly software also features contact management, expense tracking, multiple bank and credit card accounts, and the ability to import bank and credit card statements.

A useful client portal allows you to share recent transactions and allow clients to make bulk payments. You can also set up recurring invoices and automatic payment reminders.

The client portal even allows you to capture customer satisfaction feedback to share on social media, leveraging that all-powerful social proof to build your brand.

Zoho Books cons

The biggest drawback to Zoho Books? It’s only for businesses with less than $50K in annual revenue. Only one user and one accountant can access the program, unless you pay monthly for one of their subscription packages.

Only email support is available in the free version, while the paid versions use voice and chat.

Akaunting: great open-source software to manage your cash flow

Akaunting is an accounting solution that is completely online and has all the features you need to manage your small business’s financials. Akaunting is open-source, which means it has a large library of add-ons you can use to customize the software to suit your needs.

Akaunting pros

Akaunting’s easy-to-use interface is mobile and tablet-friendly. The cloud-based option allows you to access and update your financial information from any location on your device.

The software allows you to create and schedule recurring invoices, revenues, bills, and payments for continuous jobs. Akaunting also includes detailed financial reports.

A client portal is also available to share transactions and invoices with your clients and accept online payments. You can even set your clients up with a sign-in to access information.

Akaunting allows an unlimited number of bank and cash accounts. You can easily add deposits and make transfers between all accounts. The ability to add non-billable expenses as payments helps to keep the account balances up-to-date.

Akaunting cons

While Akaunting is one of the more customizable accounting options available, you may need to invest in some pricey apps available through Akaunting’s app store to get the most out of the program.

Free support is only available through the community forums, and dedicated support requires an expensive subscription plan. The support ticket system is only for users who purchased an app from their App Store.

Brightbook: web-based with powerful tools and features

Brightbook certainly lives up to its name with its colorful website. Advertising as the “world’s most loved free accounting system,” Brightbook’s cloud-based software lets you access it anywhere with an internet connection.

Brightbook pros

Brightbook is a great alternative to the paid accounting programs with unlimited user access, expense tracking and recording, bank statement processing, and auto-generated profit and loss reporting. Tax reporting is also available to track what you paid in taxes and how much you will get back. Another plus is that Brightbook has no optional, expensive additions to consider. What you see is what you get without any hidden fees.

Brightbook also links to Paypal, allowing your clients to pay you online. You can invoice a client in any currency, and the program will automatically convert it back to your home country’s currency.

Since it is cloud-based, Brightbook lets you monitor and track your financials in real-time from anywhere. While there is no dedicated mobile app to access the program, you can use any mobile browser to view and update your data.

Brightbook’s invoice templates allow you to email invoices straight to clients without leaving the site. You can also view bills and expenses in a list or a more eye-pleasing gallery view. If you have other companies, Brightbook allows you to access them under one login.

Brightbook cons

Unlike some of their other free competitors, Brightbook can’t perform double-entry accounting. There are also no third-party integrations available. While the program can be accessed from a mobile device browser, it requires more steps without a dedicated mobile app. Support is available only through web-based email.

Limitations of free small business accounting software

Free accounting software options have many features that can help you manage your business financials. However, before you dive headfirst into one of the freebies, consider a few of the drawbacks of using free accounting software.

The first problem is that the software is not scalable. As your business continues to expand, free software will likely be unable to keep pace with your growth. Once that happens, you have to invest in an expensive accounting system that can handle the financial reporting needs of your larger business.

If you decide to upgrade, it’s not always easy to migrate your financial data to the new platform. Manually inputting months or even years of financial information means a lot of data entry and wasted time on your part. If you can’t migrate the data, you will have to have your accounting information spread across two different systems.

Another pitfall with free small business accounting software is that their algorithms, or problem-solving formulas, may be more error-prone. You will need to take more time to generate and review reports to make sure the numbers add up.

Valuable accounting features you will miss

If you decide to go with one of the free small business accounting software platforms, be sure to double-check that the free version has everything you need for your financial recordkeeping. Many of these packages have decreased functionality or force you to pay extra for necessary features. Free small business accounting software will not include:

  • In-depth financial reports: Many free accounting packages offer the basic profit and loss statements, but that’s where it ends. That is, unless you are willing to upgrade to a paid subscription plan, which defeats the purpose of the free software.

  • Payroll services: You will end up paying extra if you need payroll processing since the free packages do not include this feature.

  • Lack of quality support: If you are knee-deep in expense accounting and you come across an issue, immediate support is almost impossible to come by. There is usually only email support or trying to find help from a community-based message board.

  • User limits: Free accounting software limits how many users are on the account. That can really put a crimp in things if you need additional team members, like your accountant, to access the financials.

  • Lack of third-party integration: One of the most useful features in accounting software is integration with other programs and apps. Unfortunately, many free programs don’t have this feature or charge extra for their own integrated apps.

Is it worthwhile to do your own accounting?

With free software available, you may have visions of saving big bucks since you won’t need an accountant. But doing your own financials can affect your business in other ways.

Wearing the accounting hat means spending more of your valuable time tracking and analyzing your business’s expenses. That’s time away from your current customers, who depend on you for information and resolving any problems with their orders. It’s also more time away from drumming up more business and continuing your future growth.

You will also have to learn your way around the new software. This may take even more time, especially if you are unfamiliar with accounting fundamentals.

An accounting software program is also only as good as the data entered into it. That means there’s always the possibility of user error. Free software is not a replacement for an experienced accounting professional.

These errors can come back to haunt you at tax time, which could result in a pretty stressful, time-consuming audit. If that should happen, you have no one to represent you to face the fire. An accounting professional will make sure your business is compliant with IRS regulations.

When you’re deciding how to manage your business finances, be sure to weigh each option carefully. It’s not all about saving a few dollars on accountant fees, but rather the risk of losing valuable time to help your customers.

How Bench can help

While there are many free small business accounting software options, in the end, you’ll still pay the price in the form of lost time or costly additional features.

Instead of paying extra for à la carte features to add to an incomplete program or worrying about inaccurate data and valuable time lost, you could always outsource your bookkeeping and accounting. That’s where Bench comes in.

Our team of small business financial experts can save you from the headaches and stress of doing your own books. Our powerful financial reporting, dedicated bookkeepers, one-on-one support, and tax experts offer the insights you need to make sure your small business is headed in the right direction.

Further reading:

Источник: https://bench.co/blog/accounting/free-small-business-accounting-software/

Accounting Basics for Your Small Business

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To make and keep your business successful, you’ll need to have a good grasp of accounting basics.

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Accounting is a necessary part of running a company. Business accounting is the practice of recording, analyzing, and reporting your business’s performance and financial status. Good accounting and bookkeeping practices are essential not only to knowing the financial state of your business, but also to staying legally compliant and making sound business decisions. Although this may seem overwhelming, you don’t have to be a certified public accountant (CPA) to understand the accounting basics that will help with your business’s success. 

Basic Accounting Terms

There are some terms that small business owners need to know to understand the basics of accounting. 

  • Accounts receivable: This is money owed to your business for services or goods that has not been collected. These are reflected as assets on your balance sheet. 
  • Accounts payable: This is money your business owes and is a liability on your balance sheet.
  • Assets: These are everything your business owns that has monetary value. Assets can be tangible, like equipment, land, or cash, or intangible, like stocks and patents.
  • Break-even point: A business’s break-even point is when total costs equal total revenue. At this point, there is no loss or gain for the business. 
  • Capital: Capital is a type of asset that provides an ongoing service to your business. For example, cash, facilities, software, or a brand name are all types of capital.
  • Cash flow: Cash flow is the amount of money going in and out of your business. 
  • Credit: Credits are everything flowing out of your business, so they increase a liability or equity account or decrease an asset or expense account.
  • Debit: Debits are everything flowing into your business, so they increase asset or expense accounts and decrease liability, revenue, or equity accounts. 
  • Depreciation: This accounting for small business owners the decrease in an asset’s value over time. 
  • Expenses: These are the costs of doing business. Expenses fall into two different categories: cost of goods sold (COGS) and operating expenses. COGS are the direct costs of producing your services or products. Operating expenses are the indirect costs, such as property taxes or accounting fees. 
  • Gross and net margin: Gross margin is the amount of money your business has after deducting COGS. The equation is gross profit divided by revenue. Net margin is the net profit after all your expenses are taken into account. Your net margin shows your business’s profitability.
  • Gross profit: Gross profit is your business’s revenue less COGS. In other words, take the money your business makes and subtract from it the costs of producing the good or service sold. 
  • Income statement: This is a financial document of a company that shows the business’s net profits and losses over a period of time.
  • Inventory: Inventory is a type of asset. It’s the products you have for sale and the materials used to produce them. 
  • Liabilities: Liabilities are everything your business owes, such as money or services. 
  • Liquidity: Liquidity is all about measuring the ability to turn an asset into cash. If a company has a lot of liquidity, that means its assets can easily be sold for cash without much disruption to the business. 
  • Net profit: Net profit is your gross profit less all other expenses. Sometimes net profit is referred to as net earnings, net income, or your bottom line. 
  • Revenue: Revenue is the money your business makes from selling its products or services. This doesn’t include any expenses, but is only the money made. 
  • Valuation: Valuation is the process of determining the present value of an asset or an entire company.

Once you understand all these terms, you can start creating a balance sheet and managing your business accounts.

How to Create a Balance Sheet

A balance sheet is a snapshot of accounting for small business owners business’s financial health at a single point in time. These are useful documents because they can show your business’s net worth and liquidity by comparing your current assets and liabilities. This information is useful to investors, banks and financial institutions, third-party suppliers, customers, and regulators, such as government agencies or stock market regulators.

A balance sheet will show your business’s accounting for small business owners, liabilities, and equity. The foundational equation for a balance sheet is:

Assets = Equity + Liabilities

Remember from our definitions above that assets are everything your business owns and liabilities are everything your business owes. Equity is the company’s value after all liabilities are deducted, and it’s the portion of the company owned by the business owners or shareholders. 

To produce a balance sheet, create two sections and list all assets on one side and all liabilities and equity on the other. You then compare the total amount of assets to the total liabilities plus equity and see if the numbers are in balance. 

How to Do a Cost-Benefit Analysis

A cost-benefit analysis (CBA) is an evaluation process that measures the benefits against the costs of a decision.

To do a CBA, tally up all the costs of a decision and subtract that number from the estimated benefits of the decision. If the benefits are greater than the costs, arguably this is a good business decision. If the costs outweigh the benefits, it may not be a sound decision.

There are four basic steps to a CBA. 

  1. Determine the framework for your CBA — what are your goals or objectives for the decision?  
  2. Identify your costs and benefits — create two lists, one with projected costs and one with estimated benefits of the decision.
  3. Assign a value to each cost and benefit — each cost and benefit needs a dollar amount for you to accurately compare the two. 
  4. Add up the total values and compare — after you’ve assigned a dollar amount to the costs and benefits, tally up each list and compare the numbers. Remember to circle back to the goals for your decision. 

By conducting a CBA, you may discover costs and benefits that you wouldn’t otherwise have considered had you not sat down and gone through them all. While it may be difficult to make predictions about estimated benefits or to assign dollar amounts to intangible costs, it’s still worth the effort, and there are methods and software available to help determine values.

Methods of Accounting

An accounting method is a set of rules used to decide when and how to report your business’s income and expenses. The two main types of accounting methods are cash accounting and accrual accounting. Some businesses are required to use the accrual method, so it’s important to check with the IRS before selecting your accounting method. 

Accrual Accounting

Under the accrual accounting method, you record and recognize transactions in your books once the sale is complete, even if you haven’t been paid. 

The accrual method is common because it provides a more accurate representation of a business’s true profit by recording revenues and expenses at the time of the transaction. This method can also potentially reduce your tax burdens. Since expenses are accounted for at the time they are realized, you may be able to deduct some expenses before actually paying them.

On the other hand, the accrual method isn’t as simple as the cash method. The calculations are more difficult, and there are more rules and regulations. If you get a calculation wrong, you may be left with an inaccurate picture of your business’s financial state.

Cash Accounting

Under the cash accounting method, you record transactions only once you receive payment. 

The cash accounting method is more straightforward and easier to understand than accrual accounting. It gives you a clear picture of the actual cash your business has on hand. There are no future estimations used in cash accounting. 

A major disadvantage with cash accounting is that you don’t see the full picture of your business. Since you don’t include liabilities with this method, it may appear you have more cash than you actually do. There are also some restrictions set by the IRS on who can use the cash accounting method. 

What is GAAP?

There are different ways to create your business’s financial statements. The generally accepted accounting principles (GAAP) are a set of rules, regulations, and guidelines that standardize the financial reporting process. The goal of GAAP is to create consistent and transparent financial reporting across companies.  

The organization that oversees GAAP is the Financial Accounting Standards Board (FASB).

GAAP is required for all publicly traded and regulated companies. Even if your business isn’t required to use GAAP, it’s still useful. Under GAAP, you use the accrual method of accounting, so you have www bbva com ar home banking accurate profit and loss reporting and a more realistic forecast of your projected revenues and expenses. Ultimately, GAAP can help generate financial statements that are accurate, complete, and comparable. 

Bookkeeping for Your Business

Bookkeeping is a part of accounting, but they’re not the same. Bookkeeping is regular recordation and organization of a business’s financial transactions. Accounting encompasses more and is the process of recording, analyzing, and reporting financial information. Accurate bookkeeping is essential to understanding your company’s financial position and gives you the information to make sound business decisions. 

There are some basic steps for keeping good books for your business.

Understand Your Business Accounts

We’re not talking about bank accounts, but rather your accounts for assets, liabilities, income, expenses, and equity. You need to be able to record each transaction in the appropriate account.  

Create a Tracking System

Have a system in place to track and organize each account through the use of a ledger. A ledger is a centralized place to collect and record all account data — for example, a book or bookkeeping software. 

Choose a bookkeeping method

Your bookkeeping method can be either single-entry bookkeeping or double-entry bookkeeping. Single-entry is when you enter each transaction only once in one account. With double-entry bookkeeping, you record the transaction twice: once as a debit and once as a credit. This keeps your books in balance.

Keep documentation of every transaction

It’s important to keep records of all your transactions. This can be a receipt, invoice, purchase order, or some other type of financial record of the transaction.

Periodically balance your books

Whether it be weekly, monthly, or quarterly, look at your debits and credits to see that the totals match.

Get the help you need

While you can do your own bookkeeping, you also have the option of using a bookkeeping software, hiring your own bookkeeper, or outsourcing the task to an accounting service. 

Business Credit

Business credit is a company’s ability to obtain financing. Having credit allows your business to 

purchase what it needs to operate, such as products or services. 

Dun & Broadsheet, Inc. 

Dun & Bradstreet, Inc. (D&B) is a corporation that provides data on companies and uses that information to create commercial credit reports.  

It’s important to find out whether you have a business credit profile with D&B because one can be created without you knowing. For example, if you have overdue invoices, the vendor could report this to D&B establishing an unfavorable file for your business. Lenders often look at D&B reports to determine your business’s eligibility for financing.  To know if you have a credit profile, visit D&B’s website and search with your company’s information to see if your business is listed.

How to establish and maintain good business credit

To create business credit, you first need to establish your business as an independent legal entity, such as a corporation or limited liability company (LLC). The next step is to apply for a tax identification number, also known as an Employer ID Number (EIN), which is essentially a social security number for your business. Once these steps are complete, you can apply for business credit.  

To maintain good credit, fulfill all business obligations on time and regularly monitor your business credit reports and scores for accurate reporting.  

Your business credit reports not only impact your ability to obtain financing, but they can also affect your interest rates, payment terms, and insurance premiums. Other parties can pay to access your credit reports without you even knowing, so you want to check that they’re accurate and up to date.  

The most commonly used business credit agencies are D&B and Equifax. If you already have a credit file with the agency, you will know by doing a search for your business on their website. From there you can order a business credit report to review. If you don’t have a file yet, you can open one by applying for a Data Universal Number System (DUNS) number through D&B. A DUNS number is a nine-digit identification number assigned to your business. This will open up a credit file with D&B. 

How to check the business credit of clients and vendors

Just as you can use D&B or Equifax to check your own credit report, you can also use those agencies to request the credit report of a potential client or vendor. Depending on which credit report service you choose, you may need to pay a fee.  

Focus on the Basics

While accounting may seem like an overwhelming task, it’s necessary to the success of your business. Having an understanding of the accounting basics will hopefully help you decide if you need to bring in the professionals. There are plenty of resources available, such as software programs or hiring bookkeepers and accountants.  

When you use ZenBusiness to form a corporation or LLC, you will receive a free accounting consultation with one of our experts. We provide recommendations on your accounting, bookkeeping, and tax needs during your first year of business. Let us help you get your business off on the right foot, so you can grow with confidence.

Accounting Basics FAQs

  1. Should I hire an accountant for my small business?

    While it’s possible for you to do your own accounting, the expertise and skills of an accountant can be incredibly beneficial as your company grows. Accountants are trained in accounting for small business owners best accounting practices and procedures and can analyze financial data. These professionals can also develop financial strategies and produce detailed financial reports.

  2. How much time do small business owners spend on bookkeeping?

    According to the latest survey by the National Small Business Administration (NSBA), small business owners spent more than 40 hours per year preparing and filing federal taxes.

  3. How much does it cost to hire an accountant?

    The cost of an accountant varies based on their experience and the work you’re asking them to do.

  4. What is the best accounting method for a small business?

    Small business owners typically choose the cash method of accounting because of its simplicity. Businesses that have inventory for sale to customers must generally use an accrual method for sales and purchases. However, small business taxpayers with gross receipts of less than $25 million a year may use a cash method for sales and purchases.

    For those who choose or are required to use the accrual method, keep in mind that there are software programs that can help you with this more tedious method of accounting.

  5. Should I have a separate bank account for my business?

    Commingling personal and business funds can be a nightmare come tax time. Having to go through and decipher which transactions were for yourself and which were for your business can be a painstaking and time-consuming task. The IRS actually recommends that small business owners open a separate bank account, even if they’re not required to.

Источник: https://www.zenbusiness.com/accounting/

The Importance of Accounting for Small Businesses

Editor’s note: This article contains general information and is not intended as a substitute for professional accounting advice. Please consult an accountant before making any financial decisions.



Accounting is vital for every business. Savvy record-keeping is key for monitoring business expenses and discovering new avenues of growth. In addition, maintaining accurate records ensures that business owners remain responsible for tax obligations to the government and their employees.

As you review your accounting strategy, consider your company’s financial goals. Whether you are a solo entrepreneur or employ staff, your business’ success hinges on clearly stated financial objectives.

Experts agree that small businesses commonly fail when cash flow runs dry. Your business should implement efficient record-keeping policies and a sound financial strategy to avoid this situation.

What Is Small Business Accounting?

Small business accounting requires accurate bookkeeping, which entails maintaining organized records of a business’s financial transactions, including sales, expenses, assets, and liabilities. If this is your first time exploring small business accounting, visit our helpful glossary to become familiar with basic accounting terms.

Bookkeepers commonly work with three types of accounting reports: balance sheets, income statements, and cash flow. Each report records different values and provides unique insight into a business’s financial health. The following section explores the differences between these reports.

Balance sheets measure what a company owns and owes. This type of statement provides a snapshot of a small business’s financial health at a specific point in time. Bookkeepers can view the company’s assets and liability figures at a glance.

Companies typically prepare balance sheets at the end of every quarter, but individuals can prepare them at any time. Assets, liabilities, and shareholders’ equity comprise a balance sheet.

Assets

Assets have economic value and can reduce expenses and improve sales. Examples of assets include real estate, inventory, cash, and accounts receivable. Balance sheets list assets in order of liquidity — how easily they can be sold, consumed, or turned into cash.

Liabilities

A liability is something a company owes to someone else. Examples of liabilities include employee wages, income taxes, mortgage loans, and accounts payable.

Shareholders’ Equity

Shareholders’ equity represents a company’s net worth — the amount shareholders would receive if they liquidated all assets and repaid all debts. Net worth can also be understood as assets minus liabilities. For example, a company with $10,000 in assets and $2,000 in liabilities would have an $8,000 shareholders’ equity.

Income statements, often referred to as profit and loss statements, summarize a small business’s revenues and expenses over a specific period. Companies typically prepare quarterly and annual income statements.

Income statements focus on four key items — revenue, gains, expenses, and losses — which bookkeepers use to calculate net income.

Revenues and Gains

Revenue includes operating and non-operating revenue. Operating revenue makes up a business’s primary activities, like selling products. Businesses obtain non-operating revenue through secondary business activities, like bank account interest.

Gains include money made from one-time, non-business activities, like selling off old equipment or unused buildings.

Expenses and Losses

Like revenue, expenses include costs accrued through primary and secondary business activities. Primary activities include general administrative expenses, research and development, and the cost of goods sold.

Losses include elements like unfavorable lawsuit settlements and assets sold for less than their value.

Net Income

Accountants calculate net income by subtracting a business’s expenses from its revenue. If revenue is higher than expenses, the business gains net profit. If revenue is lower than expenses, the business experiences a net loss.

Cash flow statements summarize the amount of money entering and leaving a company. These statements focus exclusively on liquid assets like cash and cash equivalents — investments that individuals can readily turn into cash.

Accountants calculate cash flow by making adjustments to a accounting for small business owners income statement. Through addition and subtraction, bookkeepers remove non-cash items and transactions from the net income. Components of a cash flow statement include operating activities, investing activities, and financing activities.

Operating Activities

Operating activities include generating and spending cash for business activities. Businesses consider receipts from sales of goods, bank account interest, payments made to vendors, and wages paid to employees as operating activities.

Investing Activities

Examples of investments include asset sales or purchases, loans made to vendors, and payments related to business acquisitions or mergers.

Financing Activities

Financing activities include generating and spending cash to fund the company, such as paying cash dividends to shareholders, receiving cash from issuing stock, and receiving cash from paying down debt.

What Does a Bookkeeper Do?

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How to Do Accounting for a Small Business

Effectively managing your small business’s finances goes beyond bookkeeping. Using professional accounting methods allows you to properly strategize for your company’s future and meet your legal requirements.

Using professional accounting methods allows you to properly strategize for your company’s future and meet your legal requirements.

At this stage, successful small businesses should consider either outsourcing their accounting needs or investing in accounting software. Each option has its pros and cons, which are outlined in greater detail below.

A Guide to Small Business Taxes

Small Business Accounting Software

Tech-savvy business owners or those familiar with accounting principles typically use accounting software. Digital bookkeeping offers a much quicker method than manual calculations.

These applications automatically crunch numbers, perform data entry, track performance metrics, and produce business reports. After correctly entering your data, the software guarantees accurate calculations, which provides added comfort in tax season.

More advanced versions integrate with other office management programs, display data trends, pay accounts receivables, remit invoices, and ensure that tax requirements are met. Extensive data storage within accounting software increases your company’s efficiency, allowing quick access to details like payment history.

Software Pros

  • Automatic data entry minimizes redundancy
  • Pre-calculated sales tax
  • Cloud-based storage eliminates the need for costly desktop technology in the office
  • User-friendly interface

Software Cons

  • Security is riskier within cloud-based services
  • Often packaged as subscription services that charge for annual updates
  • Dependent on tech support from outside sources
  • Costs can be high, especially for a desktop-based installation

Some software targets small business accounting professionals or bookkeepers, while other programs tailor to business owners looking to develop their accounting skills.

Companies with little or no inventory and few employees can use inexpensive or free basic accounting software. While business owners can easily implement this affordable software, it may leave you at risk of an IRS audit triggered by inaccurate reporting.

Popular accounting programs for small businesses include:

Review Small Business Resources

Accountants for Small Businesses

In some cases, small business owners may prefer hiring sole practitioners or accounting services firms that specialize in small businesses. Other businesses hire temporary accounting staff at certain times of the year or hire part-time bookkeeping employees with advanced training.

For a business owner who lacks accounting skills or dislikes crunching numbers, outsourcing the company’s financial information offers an attractive option. Many business owners find comfort in an accountant’s financial expertise and tax knowledge. A qualified accountant can also assist outside of managing day-to-day finances. For example:

  • Advising on how best to structure a company before launching
  • Consulting on the financial details of your business plan
  • Identifying potential cost savings in operations
  • Managing payroll
  • Developing a financial safety net in case of catastrophic events or struggling growth
  • Liaising with the IRS in the event of an audit

Though many small businesses begin with the owner as the sole employee, it eventually becomes advantageous to hand over accounting functions to a professional. In this situation, businesses may choose to hire inside or outside accountants in accounting firms.

For younger, growing businesses, using an accounting firm offers some flexibility. Keeping a firm on retainer for consultation helps businesses that need their expertise a few times per year.

This less expensive option still delivers high-level accounting expertise. Accounting firms generally charge accounting for small business owners the hour, though some analytic functions cost more than others. If you are unsure, weigh the initial costs against what a firm can save your company over time.

Accountant Pros

  • CPAs are licensed trusted advisors.
  • Professionals possess crucial tax law knowledge.
  • Accountants can provide IRS audit assistance.
  • Accountants can assist in business growth strategy development.

Accountant Cons

  • Hourly rates are costly.
  • Most of your company’s financial knowledge lies with one person, which is risky.
  • Hiring an accountant can lead to a lack of control over daily transactions.
  • Accounting services may be provided outside of the office.

Some may find choosing an accounting services accounting for small business owners just as daunting as keeping your own books. Most small business owners know the Big Four names in accounting:

  • PricewaterhouseCoopers
  • Deloitte Touche Tohmatsu
  • Ernst & Young
  • KPMG

These firms are established and well-staffed with qualified CPAs. However, their large size leads some small business owners to prefer smaller accounting firms that will not lose them among their larger clients. Smaller firms are generally much less expensive and can provide face-to-face service.

For established businesses, accounting firms’ hourly rates can become exorbitant as transactions become more complex. In this case, it may make more sense to hire an in-house accountant.

Learn the Role of a CPA

Choosing Your Accounting Solution

Having a dependable, efficient accounting system can free up your time to focus on other business tasks. As you explore accounting solutions for your company, consider the following questions:

  • What is the size of my company?
  • What accounting technology best serves my company?
  • Is my understanding of basic accounting up to the task?
  • Does my cash flow allow for accounting expenditures on a monthly or annual basis?
  • How comfortable am I handing over sensitive business data to an individual or accounting service?
  • Is daily data entry something that my staff or I can reasonably accomplish?
  • Does my company operate in a complex tax environment that may be subject to audit?
  • Do my industry competitors find a particular method to be most useful?
  • Are there compatibility factors to consider with other technological processes that regularly occur, like payroll?

Your answers to the questions above will help you decide on the most sensible options for your small business. Then, you can get back to doing what you love with confidence in your financial future.

Small Business Accounting FAQs

  • How do I do accounting for a small business?

    Small business accounting typically involves three key reports: the balance sheet, income statement, and cash flow statement. Companies perform accounting tasks manually, with accounting software, or through professional accounting services.

  • What are accounting best practices for small businesses?

    Key accounting best practices for small businesses include keeping businesses’ finances separate from personal finances, maintaining accurate records, and tracking income and expenses. Small businesses may also want to consider hiring professional accountants or automating their finances with accounting software.

  • What is the most commonly used accounting software?

    Common accounting programs for small businesses include QuickBooks, Xero, and FreshBooks. Each platform offers powerful features for small business owners, including bookkeeping tools, point-of-sale functions, and mobile apps.

  • Does my small business need a CPA?

    Many sole proprietors get by without accountants. However, working with a CPA offers many benefits for LLCs and corporations. CPAs can analyze bookkeeping records, help with payroll and taxes, offer financial consulting, and represent you during IRS audits.

  • Should I hire an inside or outside accountant?

    It depends on the size of your business and the complexity of its operations. Outside accountant costs typically increase with the size of the business. At some point, hiring a professional to handle in-house accounting may offer cost savings in the long run.


Reviewed by:

Portrait of Lizzette Matos, CPA

Lizzette Matos, CPA

Lizzette Matos is a certified public accountant in New York state. She earned a bachelor of science in finance and accounting from New York University.

Lizzette began her career at Ernst & Young, where she audited a diverse set of companies, primarily in consumer products and media and entertainment. She has worked in the private industry as an accountant for law firms and ITOCHU Corporation, an international conglomerate that manages over 20 subsidiaries and affiliates. Lizzette stays up to date on changes in the accounting industry through educational courses.

She is a paid member of Red Ventures Education’s freelance review network.


Feature Image: andresr / E+ / Getty Images

Источник: https://www.accounting.com/resources/accounting-basics-small-business/

Create a new business account, set budget aside for tax, keep your records organised and leave an audit trail. This blog will highlight even more useful bookkeeping tips and terms that you should be aware of. 


 

Basic Bookkeeping Terms You Need to Know

Accounts Payable: Accounts payable is the account which is used to track all of the money that you owe to a third party, such as supplier companies, banks, governments or anyone you borrowed money from. An easy example to think about is a mortgage as when you take one out, you sign a contract telling the bank you’ll pay them over a period of time in instalments.


Accounts Receivable: On the flip side, accounts receivable is the account that keeps track of all the money that third parties owe to you. Again, it can be customers, banks, companies or anyone that purchased or borrowed from your business.


Assets: Assets are simply all the things you or your company owns to help you successfully run the business. It can range from cash, buildings and land right through to tools, vehicles and furniture.


Balance Sheet: A balance sheet is a detailed report which breaks down the financial situation of your business. In this report, you’ll find aspects such as assets, liabilities and the capital of your business. The point of a balance sheet helps to show what your business owns and owes.


Bookkeeping: Obviously, this is one you need to know or should already know. Bookkeeping is the recording of financial transactions on a day-to-day basis. It helps to make sure that records of individual financial transactions are accurate and up-to-date.


Capital: This is simply the money or other assets which personally belong to you as the owner and not the actual profit you generate from your business or self-employment.


Costs of Goods Sold: This is another simple one, as it’s simply all of the money you spend on products or services which you plan to sell to customers.


Depreciation: Depreciation is when an asset loses value over time which can happen through wear and tear, for example. The decreased value is what’s measured as depreciation.


Equity: Equity is all of the money you invest in the company as the owner plus all the accumulated profits. As a small business owner, your equity is shown in a capital account.


Expenses: This is all of the money that you spend to operate your business which isn't directly related to the sale of goods or services.


General Ledger: A general ledger account is an account you use to store, sort and summarise all of your transactions. These accounts are arranged in the general ledger which also features the balance sheet and the income statement.


Income Statement: This is the financial statement which presents a summary of your financial activity over a certain period of time. After working out the revenue earned, the costs of goods sold and the expenses, it works out your net profit or loss.


Journals: Journals are the place bookkeepers store their records of daily transactions. For every active account you use, such as cash, accounts payable and accounts receivable, you’ll have separate journals for each one.


Liabilities: Liabilities are basically all of the debts you owe. This can range from loans you’ve taken out to any unpaid bills you might have yet to pay.


Payroll: If iron man and captain america have a small business and you have employees, then payroll is the way you pay your employees. It’s a big part of bookkeeping and involves reporting a lot of payroll aspects to the government. This includes taxes that need to be paid on behalf of employees, compensation and more.


Revenue: Revenue is all of the money you collect in the process of selling your services and goods. There are even some companies that collect revenue in other ways, such as selling assets their business doesn’t need.


Trial Balance: Trial balance is how you test to be sure your books are in balance before pulling together all of the key information for the financial reports and closing the books for the accounting period.


The above terms are really the most basic bookkeeping terms you should be aware of - to begin with. To continue learning more bookkeeping phrases along with easy-to-understand definitions, than be sure to check out and bookmark our glossary blog which we regularly update so you’re never left confused.

 

How to do bookkeeping basics : Counting coins


Basic Tips on Getting Bookkeeping Right

Create a New Business Account

There’s nothing worse than having to search through too many statements to find one small yet vital piece of financial business that you need. That can often be the case if you haven’t split your personal and business funds, so they’re always combining into one account and it’s easy to lose track.


By opening a new bank account, you can keep your personal finances and your business dealings separate so there’s never any confusion between the two. When it’s time to do your books, you’ll easily know where to find the financial information you need.


Set Budget Aside for Tax Purposes

Rather than facing a major surprise when the taxman comes knocking, it’s a good idea that you budget for tax as you go along so you don’t have to pay a big chunk at once. If you have a savings account or something similar, then it can be a good idea to set a little bit of your income aside so that you can easily pay off your tax bill with the peace of mind that you have money saved.


Always Keep Your Records Organised

If it’s already a hassle searching through one account where both personal and business funds are coming in, then cluttered records are going to bring you an even bigger headache when it comes to bookkeeping.


With records in good shape and neatly organised, you know exactly what is stored where so you save a lot of valuable time. If you’re too busy and approaching tax deadlines, you’ll be thankful that you took the time to keep your records nice and tidy so that you save time by knowing exactly where to look.


Although, make sure you keep your records organised all the time and not just as a one-off.


Track Your Expenses

It can be difficult to track business expenses, but by using a business credit card, for example, you can make sure that all of your expenses are kept accounting for small business owners and tracked. The easiest way of doing this is by categorising your bills into types of expenses to make things a lot easier.


An example can be car mileage. If you’re driving long distances for meetings, then you can keep track of your mileage and log how far you’ve travelled and the costs that go with it.


Maintain Daily Records

One of the most basic tips to follow is that you maintain daily records. If you don’t keep accurate daily records, then it’s a lot more difficult for you to track the financial condition of your business.


Implement bank of america mortgage loan status system and stick to it so that you can keep accurate records every day and there won’t be any mistakes when you’re filing your tax returns.


Leave an Audit Trail

If you’re doing your books manually, then it’s vital that you leave an audit trail. Your record keeping will be a lot more effective if you can quickly and retrace your financial activities - which is why software is a good option to consider as it can do this effortlessly.


An audit trail means you’ll have your invoices in order and you can retrace your steps easily if there’s one tiny error.


Stay on Top of Your Accounts Receivable

Late-paying customers is never a good thing and it can have a negative impact on your cash flow. Make sure you pay attention to when your receivables are due and don’t waste time when they’re overdue - act right away. See if you can work out a plan so you can get the money you’re owed as soon as possible but the longer you leave it, the longer it can damage your cash flow.


Keep Tax Deadlines in Mind

A tax deadline can be stressful for anyone. Take the simple step of setting yourself a reminder so that you have enough time well beforehand to fill out your tax returns without any mistakes. By keeping accurate records, you can make sure your returns are sent off by the deadline and HMRC won’t be chasing you up because of any errors either.


Plus, you avoid any unwanted penalties.

 

Start Using Software Now

The government has launched a new scheme - Making Tax Digital - which does exactly what it says on the tin. Tax is going to become digital and that’s a good thing, bank of america panama calle 50 you won’t have to store stacks of papers and receipts as year-long books can be done within minutes.


A digital app lets you keep your incomings, outgoings and everything in between properly organised which makes it simpler to manage your financial records. While it might sound like another burden that you need to get to grips with, on top of doing your books, that’s not the case as some apps have simple and easy to use features that make the entire process efficient and painless.


So, you don’t how to cut railroad ties in half to feel overwhelmed as a bookkeeping app will make doing your books a whole lot easier, giving you greater peace of mind. 

 

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Learn More About Making Tax Digital

Now that you know the basics of Making Tax Digital - from the terms to useful tips - and why you should use a bookkeeping app, take the first step towards getting ready for Making Tax Digital as the deadline rapidly approaches.


We've put together an easy-to-follow summary sheet, highlighting what the scheme is all about, why the government has created it, the steps you can take right now to be prepared and a lot more to make your digital bookkeeping journey an easy one. Download it below

Источник: https://www.easybooksapp.com/blog/how-to-do-bookkeeping-basics-every-small-business-owner-needs-to-know

Five vital accounting tips for small business owners

The life of a business owner is jam packed with ups, downs, mistakes and advice you wish you’d known from the start. Fortunately for you, the following five accounting tips — from bookkeeping to hiring a small business accountant — will prevent future financial mishaps.

The rise of small businesses hasn’t been subtle, with smaller companies and freelance individuals standing firm on a level playing field against large organisations. While there is plenty of potential for success, many small businesses fall short due to mistakes that could be avoided — and it doesn’t get much more important that maintaining efficient accounts.

Finances are the bread and butter of the business world. The following five accounting tips are examples of some small business practices required for success.

1. Separate your personal and business finances

Becoming a small business owner will inevitably bring about a few changes to your everyday life. As an employee, your income and other funds will be held in a personal account, whereas being a company owner will bring business-based finances into the mix. Opening a new bank account for your business transactions is essential for organisation and preventing an abundance of stress when the tax deadline comes around.

Every financial aspect of running a small business will be more difficult if you fail to separate your accounts. Invoicing, tax forms and bookkeeping will all become a bit of a nightmare if you have to search through hundreds of personal transactions to find a particular piece of business.

2. Maintain neat and accurate accounts

Everybody is different. Some prefer everything around them to be neat and tidy, west liberty state bank others have no problem with a little bit of clutter. That’s all well and good for your personal life, but when it comes to the accounts of your business, untidiness can have serious ramifications.

Efficient bookkeeping not only makes day-to-day tasks more fluent and easier to handle; larger-scale financial tasks will be less stressful to organise. If you’re a one-man operation or smaller company, you may well manage your finances in-house. Doing so may save you a small amount of money, but if organisation isn’t your forte, you’ll soon have a problem.

3. Recruit a tax accountant for small business

Following on from the previous point is a piece of advice that small business owners are often reluctant to take on board: seeking the accounting tips, guidance and expertise of a small business accountant. Small businesses tend to work with a tighter budget and are less inclined to pay for additional services. But in reality, the assistance of a tax accountant for small business can save you money in the long run.

A small business accountant has the skills and know-how to organise your accounts efficiently, not to mention the familiarity with small companies and all of the issues that can occur. While your tax accountant for small business is hard at work, you have more free time to spend on other crucial aspects of running a company.

4. Be aware of tax deadlines and stick to them

A looming tax deadline can be quite stressful, to say the least — even more so as a business owner, with more economic variables to consider. Tax forms that have been filled out incorrectly or missed the deadline altogether will result in late fees and fines, neither of which are good news for a small business with a tight budget. Also, the longer it takes you to send your tax return (after deadline), the more it costs, due to the delight of daily charges.

Again, this is where a tax accountant for small business comes in handy. They certainly won’t miss the deadline and you can be sure that your tax return will arrive at the HMRC as a well-organised, accurate depiction of the accounts of your business.

5. Embrace accounting software

In the digital age, technology is an essential part of both everyday life and the business world. In fact, it’s quite difficult to think of an industry that hasn’t changed in some way during the digital age. Go on, try to think of one now.

Personal and business finance is no different. Accounting software provides the ideal digital tool to keep your incomings, outgoings and taxes organised. The user-friendly nature of the software is also perfect for business owners who are a little less tech savvy. If you already have a small business accountant, using accounting software in tandem is an ideal way to save them the job of tidying up your mess, leaving them more free time to focus on other financial aspects that could potentially increase your profits.

As a small business owner, finances and accounting are just one branch of a complexed tree. The accounting tips above aren’t complicated and don’t require a financial genius to take on board, but they are no less vital to the success of your business. The benefits of organised books, the genius of accounting software and the peace of mind provided by a small business accountant are all points you should consider and apply to your life as a business owner.

This article was provided by Aston Black Small Business Accountants.

Further reading on accounts

Which digital accounts software is right for your small business?

Источник: https://smallbusiness.co.uk/five-vital-accounting-tips-small-business-owners-2538764/

How Much Time Do Entrepreneurs Spend on Accounting and Taxes?

We recently took a look at the results of the National Small Business Association’s 2017 member survey and we were astonished to learn how much time small business owners spend on their accounting and taxes each year.

For example, did you know that more than a quarter of small business owners spend over 100 hours per year on their federal taxes alone? Being entrepreneurs ourselves, we know that most of you work pretty long hours. So, assuming a 60-hour work week, that’s like taking two weeks off to sit in a cave while your company fends for itself. Every year.

That’s just federal taxes—forget state taxes, invoicing, receipt management, and all the other nitpicky bits of the day-to-day accounting you need to manage your business.

Take a look at how much time entrepreneurs report spending on accounting and taxes:

Accounting Tax Founders Time Spent inDinero Infographic

Do you relate to these statistics?

The good news: You’re not alone. The even better news: Outsourced accounting can give you weeks of your life back each year.

Read more about different options for outsourcing your business’s accounting in The Entrepreneur’s Guide to Accounting and Tax Options.

When is the right time to outsource your accounting?

If you’re wondering when your small business should start outsourcing its accounting, the answer isn’t always straightforward. But if you’re spending 100+ hours a year on federal taxes accounting for small business owners even 30 hours a year), it’s safe to say that the time to outsource has come.

If it were just your time, that would be one thing. But accounting and taxes aren’t just time-intensive, they’re also inherently risky. Businesses and their owners find themselves in hot water all too often for making small accounting mistakes that turn into major matters of contention. After all, there are entire private and government agencies dedicated to investigating financial affairs. Even entrepreneurs who majored in business or finance can’t possibly run a growing business and manage their books the way a trained accountant would—it’s impossible.

Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. inDinero assumes no liability for actions taken in reliance upon the information contained herein.

Источник: https://www.indinero.com/blog/time-entrepreneurs-spend-accounting-taxes

Accounting Basics for Small Business Owners

As a small business owner, you wear many hats. Unless you outsource it, that includes bookkeeper and accountant. You don’t need a fancy four year accounting degree to handle your business accounting basics, but it is important to have a grasp on important concepts to ensure accurate management reporting and tax filings.

Cash Basis vs. Accrual Basis

The first important accounting decision is your accounting method. For service based businesses, you can choose between cash basis and accrual basis.

Cash basis means all of your accounting books are based on the date that cash moves hands. For example, let’s say  you provide a service on January 1st and get paid of February 1st. The transaction is recorded on the books for February, when the cash changed hands.

Accrual basis means all of your accounting books are based on the date the service is performed. Following the example above, the transaction would be recorded on January 1st, as that is when the service took place.

Doesn’t seem like a big deal? It is a huge deal! While the difference in January 1st and February 1st isn’t dramatic for bookkeeping and tax purposes, those dates could just as easily be December 1st and January 1st, where the difference of cash basis and accrual basis accounting changes the fiscal year the transaction takes place, which impacts your tax filings.

There is no right or wrong here, just what makes the most sense for your business. Typically cash basis is easiest, particularly if you are doing your own books. However, accounting software like Quickbooks makes it easy to manage your books either way.

Product based businesses also have to choose between FIFO and LIFO inventory accounting, but that’s an article for another day.

Debits and Credits

Now that you have your accounting method picked, you have to do the actual accounting. Again, most accounting software like Quickbooks, Xero, and others take care of the heavy lifting. However, you should still understand the concept of debits, credits, and how your general ledger works.

Every time money (or inventory) moves, it should be recorded on the general ledger. The general ledger is a log of every financial transaction in your business’ history. Each transaction has two components, a debit and a credit. Because every entry has two what is the capital city of washington, this is called double-entry accounting. This article on t-accounting makes it a little easier to understand why each transaction requires two entries.

Create a Transaction Every Times Money Moves (or is Expected to)

Accounts payable (AP) and accounts receivable (AR) are not just processes to track invoices and expenses, they tie directly into your AP and AR accounts on your company’s general ledger.

For example, when you get a bill, don’t just pay it, enter it into your accounting software. That will create a new accounts payable entry that flows into your balance sheet. When you pay the bill, enter it and it moves off of your balance sheet and lowers cash while increase expenses paid.

Doing this consistently helps keep everything organized, in order, and accurate while you are busy running your business and hustling to keep bringing in the cash!

Owner’s Equity and Member Draws

You can’t just pay yourself and not record it in the books. There are a couple of general ledger accounts that are impacted when you put money into the business and take money out.

First, owner’s equity. If you spend money out-of-pocket on the business, that should be recorded and reflected. Startup costs and other expenses should be recorded as expenses. The cash you used to fund those expenses should be recorded in the owner’s equity account.

When you get paid and are operating as a single member LLC or sole proprietorship, that income should be reflected as a member draw, a contra-account to owner’s equity. If you work as an employee, it is even more important to run payroll entries correctly for proper tax reporting at the end of the year.

Clean Books Create Clean Reports

All of these debits and credit and accounts come together to perform two very important business functions.

First, your accounting record sit behind any business reporting you have access to through your bookkeeping software. Profit and loss, balance sheet, cash flow, and other reports that you can use to make the best business decisions possible all rely on accurate bookkeeping. You don’t know where and how you are making and losing money without good management reporting!

Second, your tax preparation relies on your bookkeeping accuracy. Whether you outsource it to an accountant or do it all yourself, having up-to-date books is vital in accurate tax preparation and filings. Doing this wrong can lead to audits and penalties!

If you have any doubt, you can always take an accounting class or hire an accountant. It’s better to be safe than sorry!

Источник: https://due.com/blog/accounting-basics-small-business-owners/

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4 Replies to “Accounting for small business owners”

  1. HaShomeret That’s true but they’re trying to basically compare themselves to poor people who can’t pay for daycare. They’re wealthy people choosing to spend their money on expensive daycare vs a longer commute time.

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