As a small business owner, you can’t overlook the importance of bookkeeping for small businesses. However, when it comes to managing business finances, many businesses find themselves overwhelmed and are not sure where to start. Reliable and professional bookkeepers understand small business challenges when managing their finances. They follow bookkeeping principles that can ensure effective financial management. In this blog post, we’ll explore common bookkeeping principles for the success of small businesses.
What are the fundamental principles of small business bookkeeping?
Bookkeeping refers to recording, summarising, and interpreting financial transactions systematically. The bookkeeping process helps businesses know essential information such as cash position, profit or loss, financial status, etc. There are principles of bookkeeping that must be followed all the time.
- Revenue principles
The revenue principles define a time when bookkeepers may record financial transactions as revenue in the business books. It indicates that revenue for the business is earned and recorded. According to this principle, the revenue occurs when the buyer takes legal possession of the sold item or the service is performed. This indicates that revenue is not when cash for the financial transaction is accepted by the seller. This is known as a revenue recognition principle.
- Expense principle
The expense principle indicates the time when bookkeepers in Melbourne may record a transaction as an expense in the business books. It implies that an expense occurs when the business accepts services or goods from another entity. The logic behind this principle followed by a bookkeeper is that the expense occurs when the service is performed, or goods are received, irrespective of when the business pays or is billed for the transaction.
- Matching principle
The matching principle states that when a bookkeeper records revenue, they also record all related expenses. Hence, they charge inventory to the cost of goods sold at the same time when they record revenue from the sale of those inventory items.
- Cost principle
This principle indicates that you need to use the previous cost of an item in the business books, not the resell cost. For example, if a business has property, such as vehicles or real estate, then those assets must be listed as the past costs of the property and not at the existing fair market value of the property.
- Full disclosure principle
The full disclosure principle indicates that the financial statements should include all the data that was required to create the report. It is crucial to help the reader understand the statement clearly and figure out the financial position of the company.
- Objectivity principle
The objectivity principle indicates that you must use only factual and accurate data in the business books. Don’t follow guesswork. Even if the subjective information seems better than factual data, verified information should always be used.
What is the cost of bookkeeping for small businesses?
The cost of bookkeeping services can vary based on several factors such as the complexity of its financial transactions, the size of the business, and the level of service required. It can range from a few hundred to a few thousand dollars on a monthly basis. Some businesses hire bookkeepers on hourly rates, while others choose monthly or annual packages.
Bookkeeping services are crucial for managing a business’s finance records accurately. These records are used by a tax return accountant when it’s tax time. You can file a tax return on your own or seek help from a professional tax accountant. If you use a tax accountant, there will be less chance of errors.
Does a small business need bookkeeping services?
Small businesses need bookkeeping to maintain financial records and make accurate decisions. Bookkeepers help you monitor income and expenses, manage cash flow, and comply with legal requirements. They help you understand your company’s financial position and performance.
Conclusion
The blog shares bookkeeping principles for businesses followed by each professional bookkeeper. These principles help you maintain the objectivity and accuracy of business books. If you are looking to keep your business books well-organised, you can get our Reliable Bookkeeping Services.