Small Business Accounting Policies

Bookkeeping

Bookkeeping, or record keeping, is a foundational element in small-business accounting. It enables a company to lay out the groundwork for fraud and error prevention in the way bookkeepers, or junior accountants post economic data. The most important aspects of a bookkeeping policy handbook include identifying financial accountants relating to transactions, making proper journal entries, correcting errors and preparing trial balances. Financial accountants range from assets and debts to expenses, revenues and equity items. A junior accountant debits an expense or asset account to increase its worth and credits the account to decrease its value. The opposite is true for a debt, equity or revenue account.

Trial balance preparation is the next step after posting journal entries. The goal is to ensure all debit amounts equal credit amounts, an equality that directly correlates to the basic accounting equation. This requires that assets equal liabilities plus shareholders' equity. A trial balance procedure ensures that accountants review bookkeepers' entries and verify conformity with specific norms. These include generally accepted accounting principles, international financial reporting standards and American Institute of Certified Public Accountants pronouncements.

For a small firm, budgeting is the perennial tool that helps the company stay in business in the long term. Budgeting procedures help personnel understand that the firm must live within its means, and that top managements' calls for financial restraint help the company save much-needed cash. It may use the savings to invest in its future, expand and gradually become a major player. In essence, budgeting helps a company review its revenues and expenses, and come up with sound ways to limit costs without throwing off kilter its main creeds of profitability and market share gain.

As an important accounting work stream, financial reporting enables a small business to reveal its performance data to the public. The idea is to publish operating information in a thoughtful and methodical way, one that conforms to industry principles and helps readers make sense of the company's financial situation. Financial reporting procedures help small businesses publish accurate and complete statements of cash flows, statements of profit and loss, statements of shareholders' equity and statements of financial position.