More businesses than ever realize that manual accounting and bookkeeping are both error-prone and time-consuming. To ensure their accounting staff has adequate time to focus on more productive activities like creating accounting policies, businesses worldwide are using accounting software to automate their accounting processes.
Having an accounting software does not mean anything if your accounting staff does not know the principles of financial management. Here are some bookkeeping basics that will help deepen your understanding of financial management principles.
Identify the Leaks That Are Costing You Money
The primary purpose of financial accounting is to help businesses understand the aspects of their operation that are costing them money. Compare the cost of your services/products with the revenue they generate.
When analyzing business processes, remember to account for depreciation on equipment used by the concerned department. If you own a food business, remember to account for waste and spoilage.
To understand your profit margins, you need to focus on the revenue generated by your products and services, and examine all the costs associated with them. Your accounting system will help you analyze these costs, paving the way for better decisions.
Do Not Commingle Funds
Keep your business and personal finances separate. Document loans from your personal account to your business. All business expenses should be charged to a business credit card.
Claim the Deductions You Are Eligible For
Each year,many businesses fail to claim deductions they are eligible for. You do not want to commit this costly mistake. If you have just started your business and are unable to figure out ways to reduce your taxable income, hire a bookkeeping firm near you that will help you understand and claim deductions you are eligible for.
Distinguish between expenses and investments that must be deducted from income in the current year and those that must be spread out over time. Remember to claim capital cost allowance. Make an effort to understand which deductions should be claimed immediately and which ones should be deferred to a profitable year.
Be Careful When Accounting For the Cost of Goods
Entering the wrong cost of goods can result in missed tax-saving opportunities.
When entering the cost of goods data in your bookkeeping software, account for different factors such as seasonality and vendor discounts that can impact the final price of your goods.
Choose the Right Accounting Method and Stick to It
The two primary accounting methods are the accrual method and the cash method. Irrespective of the system you choose for your business, stick to it, as switching back and forth between the two systems can increase the workload of your accounting staff and cause unnecessary confusion.
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