The small business accounting checklist

It takes a lot of effort for a business enterprise to succeed and make it profitable. It is a result of continuous efforts inculcated by the entrepreneurs.

In order to thrive and promise the smooth functioning of the business, it is extremely important to keep a handy checklist of foolproof accounting in place. It not only ensures that anything important is not missed by the business and as well promotes the practice of keeping a complete and an all-inclusive financial records in place which helps in streamlining the tax preparation.

It becomes indispensable for any kind of business to keep a proper team of accountants on hand so as to determine whether it is in a profitable state or not. Furthermore, accounting is also extremely important in order to understand which areas of the business are doing well, and which ones need more attention. A book keeping function ensure that every transaction of the business is properly recorded.

Normally, most big companies have a dedicated accounting section to cater to accounting needs it is of equal importance for small businesses to keep a checklist on tips for having a seamless accounting experience.

Although most big companies have separate units for various sectors of finance and accounting like cost accounting and retail accounting etcetera; it would be in favor of small businesses to keep a composite accounting record.

Small Business Accounting Checklist

Let us take a look at a handy checklist that shall help the small entrepreneurs to keep their accounting in place and setting up a robust accounting strategy!

1. Checking the daily Cash flow

Cash liquidity is extremely crucial in order to ensure the day to day operations of the business enterprise. The business should always study and analyse the expected payments to creditors, vendors and cash inflow from debtors to evaluate any particular trend if exists.

By daily checking the cash flows so the entities can keep a track of avoidable and unavoidable expenditure, and is, therefore, one of the most important tenets of the accounting checklist for business start-ups.

2. Day to day recording

A business should record all the transactions that happen during the course of normal business cycle. This shall help in ensuring that all the functions like the customer billing, vendor payment and cash receipts etcetera are in place and there is no room for embezzlement or fraud.

Although this can be done manually but a lot of accounting software and accounting applications help the owners to ease this recording function like the MS Excel or the QuickBooks.

A day to day recording in the chronological order makes the owner have a strong hold over the businesses’ accounting functions.

3. Documentation

A proper invoice always ensures that the documentation process is in place. This makes the recording of transactions complete and to the point. It also makes the audit trail complete and easier to trace.

Nowadays the businesses prefer to issue and accept digitized invoices thereby reducing any clutter. In case of any theft or fraud, the documented processes are easier to trace the whereabouts.

The documents must be generated as and when the transactions occur in order to prompt and accurate record generation.

4. Time management

It is inevitable to keep a prompt system of payment and receipts. This helps in building the credibility and goodwill in the market. A delay in payment is like a bane to the business.

The small business owners should always keep a track of their accounts payable and ensure that enough funds are available at all the time and have been earmarked to pay their suppliers on time.

This, would ensure that friendly relationships are maintained with the vendors and shall avoid any late fees. A business that pays on time also has better chances to receive on time.

5. Check on financial statements

A close check on the financial statements ensures that the financial health of the company is in fact in place. The unpaid vendors, expected cash inflows and outflows, projected earnings statements etcetera are some of the indicators about the good financial health of the company.

A check on statements requires close scrutiny for all the to and fro transactions. This would cover up checking the cash flow statements, income and expense statement, and the balance sheet.

This helps the company to know the limits of the credits, loans and the deadline meeting criteria. This would also help the business in the long run by making a better-informed decisions.

6. Reconciling the pass book and cash book

An accurate reconciliation of cash records as per the books of accounts and as per the bank statement is very helpful in knowing the position of the cash liquidity, the cheques in transit and charges of the bank in particular.

A reconciliation done after every 2 months helps in cross-checking whether or not the creditors have actually deposited money in the bank for repayment. This also makes it easier to correct errors or find omissions which can then be looked into and corrected

7. Physical Inventory check

The inventories must be verified physically from time to time at a fixed interval. This helps in calculating the economic order quantity needs and the reorder needs. It also helps in locating and regulating the pilferage, leakage or theft if any. This is extremely important in case where the operating cycle is high and the goods are of perishable nature. This helps in knowing the authenticity of the store keeper as well.

The business may fix either 15 days or 1 month for checking; depending on the length of operating cycle of the business. Even a surprise visit shall add more security.

8. Tax and other legal paper work

It is extremely important to keep all the legal documents in check. Keeping an up to date paperwork with respect to tax, payroll, foreign laws, licences and trademarks (if needed) and the documents needed to start the business as per the country law has no other option.

This shall ensure the company is complying with all the laws and regulations with respect to federal, state, or other local taxes. It is helpful for avoiding unnecessary legal implications and attracting any unwanted legal attention from the government.

In India a company is required to pay tax annually, with advance tax every quarter (may change subject to relevant amendments from time to time)

9. Receivables Ledger

This act as a life jacket in the time of financial crunches. Sometimes, due to unforeseen circumstances, the business might not get paid back in time. Therefore, always maintaining a ledger separately to record all past-due invoices can help to keep a track of how much money is owed to the company and from whom.

This shall make reaching out to the people who owe the money much more easily. The debtors can be contacted at appropriate time intervals.

It is also helpful in knowing the amount collected, the amount due, the portion of the amount that remains uncollected. This shall further help in estimating the percentage of bad debts and the amount of provision which the business needs.

This shall also help in maintaining the finances promptly. It would be in favour of the business to check the receivables ledger every quarter.

10. Variance calculation

Variance refers to the difference between the budgeted and actual amounts. It is crucial to correlate the current year’s profit & loss statements with what was budgeted at the start.

This is always a way to assess if the company is moving rightly in the direction it initially thought it would. Whether the company’s goals and objectives are met or not can be ensured with the help of variance calculation.

An entrepreneur can check historical profit-loss statements to compare yearly performance while finding out problem areas in the business. Comparing it against what was budgeted is also extremely useful in finding out how close the company is sticking to its goals.

The study of variance also tells how much the basis on which the goals have been initially formed needs revision. It is recommended to do it semi-annually.

11. Horizontal and Vertical comparisons

By comparing the balance sheet on an interval smaller than one year for the same time period for the previous year, a better clarity of how the assets and liabilities are performing can be evaluated.

By looking out for significant trends and changes, the company can predict much better future outcomes, and take necessary actions as and when necessary. This also helps in finding what new the company can introduce in a particular month or quarter to boost up the profits.

A cost accounting comparison of the products shall give better and deeper insights of how the company should take the product further. A comparison on quarterly basis shall be really beneficial.

12. Making the reports as per the country and industry

Every business enterprise function as per the laws of the industry and the economy in which it is operating. The entity needs to be sure about complying with the needs of reporting as per the norms as laid down.

If the legal frameworks require submitting some of the reports on a specified time interval it should be well aware of and must be complied with.

The time period whether it is monthly, quarterly or semi -annually must be checked and the reports must be submitted accordingly.

13. Filling out requisite forms

The business unit must be well aware of the forms it is needing to fill as per the national and international standards. In order to avoid the penalties, proper knowledge of various deadlines is a must.

Setting a yearly remainder shall be like a savior for the business.

To better manage the time, e-filing services available online shall be used. This is a very efficient and effective way of saving time and cost as well.

In India a company usually requires, before registration

• Aadhaar Card
• PAN Card
• Bank account
• Registered office proof
• DSC – Digital Signature Certificate
• Form – 1 for Incorporation of Company in India
• Form-32 for particulars of managers, secretary, and proposed directors
• Director Identification Number of all proposed company directors
• Original copy of the formal letter which is published by ROC about company name availability
• Form- 18 for address or situation of the proposed company.

There are significant changes from time to time in the requirement of forms which should be adhered to and completed in keeping pace with the changes.

14. Dedicated accounting wing

Accounting is one of the most crucial function of the business. Whatever the business earns if not properly accounted shall go in vain. It is extremely crucial to keep a dedicated accounting wing to take responsibility of the same.

There are a lot of legal and procedural compliances which the business needs to adhere to. This means that there must be at least one dedicated person who is well versed and fully aware of how and when to do it.

Most of the big businesses are required by law to keep a Chartered Accountant which is not a compulsion for businesses up to a certain turnover limit; so usually they avoid keeping an accounting unit as well.

Though a lot of big businesses are doing it; efforts should be made by the small units as well to promptly maintain a dedicated wing for it. Even if the manpower resource is limited a small business unit must keep at minimum one dedicated staff for accounting.

A company needs to be profitable in order to survive. It is extremely important in order to maintain the records of its profitability. Any number if missed from book keeping can turn the business upside down.

Small business can accelerate their wheels of success at a fast pace if they have a good accounting function maintained. The business in their growing phase can take the help of qualified chartered accountants and various available QuickBooks online.

A good bookkeeping and accounting function ensure the loopholes are reduced to a minimum and the enterprise is greased from time to time for proper functioning.