One should never undermine the importance of accounting for small businesses. Proper bookkeeping for small businesses helps in tracking the income and expenses and managing it efficiently and also lays a background for the preparation of the financial statements. In this article, we will cover the major aspects of small business accounting. So, let us just move ahead and dive in.

Accounting or bookkeeping for small businesses

Even after understanding the importance of bookkeeping for small businesses, a question arises, how exactly one should do it? Is there a defined procedure or steps? Let us look into a high-level general process that every small business should follow for accounting for small businesses as a business owner.

The first thing you as a business owner or small business accountant should do is to identify the financial transactions pertaining to your business, prepare its source document. The source document would then serve as the basis for recording the transactions in the accounting books. It is very important to segregate between personal and business-related transactions for accurate accounting of the small business.

The small business accountant should record all the financial transactions pertaining to the business in the books of original entries by posting journal entries in it. The journal entries should be posted in chronological order and as per the dual-entry system of accounting.

Ledger accounting is done by small business accountants to track the transactions that happened in a particular ledger and their impact on the closing balance of that ledger. The general ledger accounts are prepared based on journal entries and are also known as the books of final entries.

Trial balance list of all the accounts balances of the business in two columns i.e.; debit and credit based upon the nature of the balance. It is prepared to check the mathematical accuracy of the accounting done till now. Both sides of the trial balance should be matching with each other.

After preparing the initial draft of the trial balance, the accountant should pass adjusting entries if any and prepare adjusted trial balance accordingly.

The last step is the preparation of financial statements including income statements, balance sheets, statement of change in equity, and cash flow statements.

After preparation of the financial statement, an accountant should close the accounts measures periodically to prepare the system for the next accounting period.

That’s how you would handle accounting for small businesses.