Every small business is required to keep bookkeeping records to produce at the end of the financial year a set of accounts to show the sales income, business expenses and the net profit for tax purposes. Medium and larger businesses employ accounts clerks, bookkeepers and accountants to maintain the financial records and produce regular accounting information https://irenasbookkeeping.com.au/.
Small businesses and in particular self employed business have a choice in how the financial accounts are prepared and produced. A small business may employ the services of a bookkeeper to produce the accounts while another similar business may keep a manual record of financial transactions while a third option is to use a bookkeeping software system.
There are several advantages and disadvantages to whichever course of action a small business may take to produce the financial accounts and at the outset it is better to make a definite decision on which route to take. Financial accounts, financial control over the business activities and the knowledge of how well or badly the business is performing is crucial to success in the business environment.
The underlying necessity is that if the small business does not take a decision on its financial accounting then at the very least it must accumulate documents of prime significance such as sales invoices, purchase invoices and possibly bank records during the financial year and assemble these into some sort of order after the end of the financial year for tax purposes. Failing to keep financial records often results in a succession of administrative burdens and often also leads to financial penalties if taxation deadlines are not met.
If the small business owner chooses not to go down the route of using bookkeeping software or outsourcing the financial function to a bookkeeper or accountant then manual financial records must be kept. Producing an income and expenditure account for the business using the prime financial documents of business is not rocket science and most businessmen capable of running and managing a business have the skills required to producing the bookkeeping records.
The major disadvantage of a small business keeping manual records is that documents get lost which may result in profits and taxes being over declared, fines and penalties through inaccuracies and often when accounting is produced in this way it is done at the end of the financial year purely for tax purposes rather than as an essential tool of the business and that reduces financial control within the business during the financial year to a minimum and often zero.
If a manual bookkeeping system is adopted then disciplined recording of the financial information on a regular basis should be enforced and regarded as an essential function and not an administrative burden. The main purpose of regular accounts being to both see and understand the financial position of the business and take positive action as required at the earliest opportunity to achieve a satisfactory financial result.
Other alternatives include utilising bookkeeping software which is effectively often a manual system in itself but within definite parameters to produce the essential information. A bookkeeper might be employed whether a manual system is used or bookkeeping software adopted.
Using bookkeeping software has many advantages. First of all any small business that has purchased bookkeeping software is more likely to keep regular up to date accounts than one that has not. And secondly the bookkeeping software is likely to provide a fixed set of disciplines and produce the type of records a small business requires for both the preparation of regular financial statements and the end of year tax returns.