Small Business Accounts

When the procedure of bookkeeping ends the process of accounting begins. The system of accounting is maintained by the small business concerns as well as big business entities. But the numbers of transactions that occur in the small business concern are limited compared to the big business houses. The accounting system is more simplified and easy to understand. The journal entries differ because there are a number of financial events that are different.

The companies normally raise funds through the public in three processes application, allotment and call stage. But in case of small business concerns it is the proprietor or the partners who invests money into the business. Therefore journal entry is passed in a simplified form as follows:

Cash a/c----dr. $100

Furniture a/c Dr. $100

To capital a/c $200

Whereas for a company, journal entries will be passed at application stage, allotment and call stage and special entries will be passed in circumstances like if the shares are refunded, if the call money is receivable or when shares are redeemed at discount, par or premium.

The accountant of a small business concern should be familiar with basic principles of accounting. He must be knowledge about the most common aspects which occur in the business concern like maintaining bank statements and must be able to reconcile the difference if existing in the bank pass book and bank statement maintained by the firm. A statement of bank reconciliation statement is prepared at the end of the year. At the same time he must be conversant with the theory of bill of exchange because many times the firm buys goods on credit basis and also sells goods on credit. He must pass right journal entries when the bill is drawn and accepted, bill is discharged, dishonored, renewed, retired and when noting charges are paid. Depreciation accounting is also maintained by the small business concerns because they purchase assets like furniture, mobile set, and lighting equipments etc. for office maintenance. The value of these assets naturally fall down with passage of time, damage caused to the asset, obsolescence etc. therefore depreciation account is maintained to determine the value of the asset at the end of the year. The rates of depreciation are fixed and should be followed as per the income tax rules. He must know about the accounting procedures when the asset is repaired, disposed, when provision is made for depreciation etc. there are different methods of depreciation accounting like straight-line, revaluation, and annuity and diminishing method. Besides he must properly maintain books of cashbook, ledger, sales and purchases.

At the end of the financial year he must prepare statements like trial balance, Trading Account, Profit and Loss Account and Balance Sheet. He must prepare these statements accurately and the balance of the assets and the liabilities must tally at the end of the year otherwise there are chances of errors made. After closing the books of accounts if he discovers errors in the total amount entered or has classified a particular transaction under wrong accounting head then he must pass adjustment entries to neutralize the differences existing in the books he has maintained. He must know fairly about the inventory accounting because the value of the closing stock.

The accountant of a small business concern is free from many headaches that are faced by the large entities. The small business concern does not comprise of various departments like sales, purchases, warehousing, maintenance, etc so he need be well-versed with 'department accounting'. In case of department expenses are allocated to various departments using some formula. As the size of a small business firm is small they do not establish any branches outside the town as in small business concern. So he need not have the knowledge of branch accounting which requires special skills and knowledge.

The format of Trading, Profit and Loss Account is not much different in case of big business concerns expect in case of company's account director's remuneration is calculated by using a formula. As the companies raise funds from the public through shares, debentures or government securities the first heading classified on the liabilities side of the side is read as "Share Capital". But in case of small business concerns, it is termed as Capital a/c or Partner's Capital a/c. The small business entities do not create reserves like general reserve, secret reserve, general reserve etc and therefore the heading of 'reserves' is not present. Otherwise, the format is not indifferent from the format of company’s statements.

The accountant of the small business firm must know about the principle rules of debit and credit. Also, he must be able to classify the capital and revenue items. The capital items include purchase of assets of larger value which is useful to the firm for a longer period and they are entered on the asset side of the balance sheet. Revenue items include the expenses or income that is routine in nature and the amount spend is smaller. It includes payments made for stationary, electricity, auditor’s fees, and they should be taken to Profit and Loss Account.

Computerized accounting has made the accounting procedure of the firm simple and quicker. The software of Tally 7.2 is largely in use in case of small business firms. The user must just create accounts and pass journal entries; the statements like trial balance, profit & Loss a/c, and balance sheet are automatically generated. But the accountant operating when he is creating account must classify the account under the right category. For eg. if he is creating a account for the stationery purchased as Stationery Account he is rightly classify the account under “indirect expenses” category. If he classifies it under Purchases, then the package will wrongly show the balance of purchase a/c as well as Stationery a/c and the results displayed in the trading account will be an error.

The fee incurred for training is not very high and therefore many students, unemployed youth can be benefited from this. The opportunities for an accountant now-a-days are fine and therefore being training in this field will be gaining. Therefore most of the youth must grab the opportunity of being an accountant because the salary offered will be decent enough for a beginner.

Other Articles

Patent law firm that can help you file the...

Nobody can use his concept to manufacture...

Intellectual property rights and patent laws...