A guide for Startups Financial Accounting

Maintaining accounting standards is a very important aspect for any business organization. Without proper accounting, you can’t figure out your actual cash inflow or approach an investor regarding any project or deciding with your annual financial budget. We have listed some important aspects of financial accounting which will enhance your business’ overall functionality with clear set of objectives.

The difference between Book keeping and Accounting

Accounting system for startups follows book keeping in its initial stage and then heading towards financial accounting on the basis of complexities arriving in maintaining book keeping.  Hence, it can be said that financial accounting is much broader concept than book keeping.

Identifying the apt method

You can always opt for the best accounting software for automated and secure accounting procedures. Deciding with accounting method depends whether it will be a Cash Basis method which totally works on inflow and outflow of cash or it is an Accrual Basis method which depends on the revenues and expenditure when they actually occur. There is another called Tax Basis which deals with tax-centric financial activities like tax returns, different depreciation methods and minimize your tax liability.

 Systematic Journal Entries

A journal is used to keep a chronological record of all transactions. The journal entries are made from source documents that contain information about the transactions such as sales receipts, purchase orders and invoices.

Posting Ledgers

This includes accounts payable, accounts receivable and general ledger. When a journal entry indicates a change in the accounts, the account balances are changed in the appropriate ledger accounts.

Maintaining Trial Balances

Just to ensure whether you have put right journal and ledger entries, you prepare a trial balance occasionally to match the debit and credit balance, and if they don’t match? You have to correct it then and there only.

 Reconciling Bank Statements

Reconciling these statements on a monthly basis allows you to understand whether your financial statements are accurate or not? If not, then adjusting entries are made to balance your accounts with your actual situation. Finally a Profit and Loss account is created to show the net income or loss for a particular accounting period.