Accounting Basics for Small Business Owners: What You Need to Know

Accounting Basics: Understanding the Fundamentals 

When it comes to accounting, there are a few fundamental concepts you should understand as a small business owner. These concepts will help you make informed financial decisions, track expenses and revenue, and prepare for tax time. 

1. Accrual vs. Cash Accounting 

One of the first decisions you'll need to make is using the accrual or cash basis of accounting. Accrual accounting records transactions when they occur, regardless of when the money changes hands. Cash basis accounting records transactions when the money changes hands. While both methods have their benefits and drawbacks, most small businesses use the cash basis of accounting as it's more straightforward to track your cash flow when the money hits your bank account.  

‍

"Cash basis accounting records transactions when the money changes hands"

A simple example of the difference is invoicing. If you apply an accrual accounting method, you will record income once you complete a job and send the invoice, even if the invoice still needs to be paid. Under cash accounting, you would record the revenue once the invoice payment has been received. Cash accounting is easier to track because you can look at your bank transactions to determine your financial position.

2. The Chart of Accounts 

The chart of accounts lists all the different accounts or categories your business uses to track its finances. It includes accounts for assets, liabilities, equity, revenue, and expenses. Setting up a chart of accounts is vital so you can group incomings and outgoings into logical themes, track your spending over time, compare performance across different periods, and monitor the tax implications of these different accounts. 

If you are working with an accountant, they will help create a chart of accounts. New accounting software, such as Thriday, will automatically generate a chart of accounts based on the activity happening on the account.

‍

3. Recording Transactions 

Recording transactions is the foundation of bookkeeping. It involves tracking every financial transaction in your business, from sales and purchases to payments and receipts. This information is then used to prepare financial statements, such as your balance sheet and income statement. 

Historically, accountants recorded transactions in a 'book', hence the term 'doing the books'. With the advent of computers and cloud computing, new software moved these transactions to digital ledgers, which were much easier and faster to maintain. Next-generation accounting software like Thriday integrates bank accounts* and Visa Debit cards* so that all your transactions are automatically recorded and categorised in real time.

Now that you understand these fundamental accounting concepts, you'll be better equipped to manage your finances and make informed business decisions. The following section will explore how automated accounting can help streamline your financial management process. 

Automated Accounting: How it can Benefit Your Small Business 

As a small business owner, your time is valuable, so you don't want to waste hours each week on manual accounting tasks. That's where automated accounting comes in. Automated accounting is a new technological advancement whereby software streamlines your financial management process, saving you time and reducing the risk of errors.

‍

"As a small business owner, your time is valuable, so you don't want to waste hours each week on manual accounting tasks"  

1. Benefits of Automated Accounting 

Automated accounting offers many benefits to small businesses, including: 

• Time savings: Automated accounting software can handle many tasks that would otherwise require manual effort, freeing up your time to focus on other areas of your business. 
• Accuracy: Automated accounting software is less prone to errors than manual bookkeeping. It can catch mistakes before they become more significant problems. 
• Organisation: Automated accounting software can help you stay organised by tracking your expenses and revenue in real time rather than manually entering or uploading transaction data.
• Accessibility: With automated accounting software, you can access your financial data from anywhere, at any time. You don't need to go to an accountant's office or sit at a desk to check your numbers.

2. Choosing the Right Automated Accounting Software 

When it comes to choosing automated accounting software, there are many legacy options available. Traditionally, software such as MYOB and Xero were considered the defacto solutions. Still, new software may perform better when considering price, features, ease of use, and customer support. 

New automated accounting software is gaining popularity because of how much time and cost it saves. In the next section, we'll discuss how Thriday's accounting software can further help small business owners streamline their finances. 

Thriday: Why it's the Best Choice for Small Businesses 

Thriday offers an all-in-one automated accounting software solution to help small business owners quickly manage their finances. Here are some of the reasons why Thriday's software is the best choice for small businesses: 

1. Streamlined Invoicing and Payment Processing 

Thriday's software allows you to create professional invoices and send them to your clients in just a few clicks. You can also track payment status and set up automated payment reminders, making it easier to get paid on time. Once an invoice is paid, the income is automatically reconciled, and the invoice status is updated to paid.

2. Automated Expense Tracking 

With Thriday's software, you can automatically track your expenses and receipts using the Thriday Visa Debit card*. This helps you keep track of your spending and removes the process of categorising expenses for tax purposes. 

3. Real-Time Financial Reporting 

Thriday's software provides real-time financial reports, giving you an up-to-date picture of your business's financial health. You can view your cash flow, profit and loss statements, and balance sheet at any time, from anywhere. 

4. Secure Data Management 

Thriday's software uses bank-level security measures to protect your financial data. You can rest easy knowing that your sensitive financial information is safe. 

5. Automated Accounts Payable

Thriday's software allows you to upload, forward, or scan bills you need to pay for automated scheduling. Instead of manually entering the details, you just need to upload the bill and hit pay. It's that simple.

By choosing Thriday's automated accounting software, you can simplify your financial management process and focus on growing your business. In the next section, we'll discuss tips for getting the most out of your accounting software. 

‍

Automated Accounting Software Benefits

Automated accounting software is another option that can save you time and reduce the likelihood of errors. With the right software, you can automate your bookkeeping and accounting processes, including invoicing, bill payments, and bank reconciliations. 

One of the biggest benefits of using automated accounting software is that it can help you avoid human error. Transactions are automatically recorded and reconciled, which can reduce the risk of mistakes that could lead to costly errors down the road. 

Another benefit is that it can save you time. By automating standard processes, you can free up time to focus on other aspects of your business, such as marketing, sales, and customer service. 

In the next section, we'll examine the factors you should assess when reviewing accounting software. 

Choosing the Right Accounting Software 

When choosing the right accounting software for your small business, there are a few factors to consider. 

First and foremost, you must ensure the software is compatible with your business needs. Look for features that are important to your business, such as invoicing, expense tracking, and inventory management. 

Another factor to consider is the ease of use. You want to ensure the software is intuitive and user-friendly so that you can easily navigate and use it regularly. 

Pricing is also an important consideration. Some accounting software options may be more expensive, so weighing the cost against the value it can provide to your business is crucial. 

Finally, consider the level of support offered by the software provider. Look for companies that provide responsive customer support and resources to help you get the most out of the software. 

Choosing the right accounting software can be a big decision for your business. It's important to research and carefully evaluate your options before making a final decision. 

In the next section, we'll review some of the most popular accounting software options for small businesses. 

Top Accounting Software for Small Businesses 

Many accounting software options are available for small businesses, each with unique features and benefits. Here are some of the most popular accounting software options on the market today:

Thriday

Thriday is an all-in-one financial management platform that automates banking, accounting and tax. Thriday eliminates the time wasted on financial admin by small business owners. To find out how much time you can save, take the time saver quiz.

Xero

Xero integrates with various third-party apps and services, making it a flexible and customisable option for businesses. Xero is the most expensive option and is known for lacking customer support.

MYOB

MYOB offers invoicing, expense tracking, and time tracking features. It's one of the original accounting software options in Australia. MYOB is more suited to larger businesses, given the complexity of the product.

QuickBooks

QuickBooks is another accounting software option for small businesses. It offers a range of features, including invoicing, expense tracking, and inventory management. QuickBooks also offers several pricing plans to fit a variety of business needs. 

‍

Accounting FAQs

What is accounting for business?

Accounting for business is the process of recording, classifying, summarising, and interpreting financial transactions and events that occur in a business.

Why is accounting important for business?

Accounting is important for business because it helps business owners make informed decisions based on accurate financial information. It also helps businesses track their income and expenses, manage their cash flow, and comply with tax and legal requirements.

What are the different types of financial statements?

The different types of financial statements include the income statement, balance sheet, and cash flow statement.

How can I learn accounting for my business?

There are various ways to learn accounting for your business, such as taking a course in accounting, reading accounting textbooks, using automated accounting software like Thriday, and hiring an accountant or bookkeeper to manage your finances.

Understanding the basics of accounting and bookkeeping is essential for any small business owner. Automating your accounting processes can save time, reduce errors, and make better financial decisions. With the right accounting software, like Thriday, you can streamline your bookkeeping and focus on growing your business. Remember, it's always possible to start automating your accounting, so feel free to take the first step. Sign up with Thriday today and take control of your financial future.