Accounting 101 – For Home Based Businesses

Business Accounts

Home based businesses are still businesses, and as such a financial accounting is needed for several reasons.

Taxes are one of the most important reasons for a home business to keep accounting records.

At the end of the year, you need to show money made and money paid.

There are several ways to do this, and a basic knowledge of accounting practices is not a roadblock.

Some small business owners think that since they work from home, income and expenses do not need to be tracked, but this is totally untrue.

Keeping account books and records can be done with a variety of accounting software available for sale.

It is possible to run an entire business on an Excel Spreadsheet, but applications like Quickbooks, Moneyspire, Xero, Sage or FreshBooks are purpose built and will comfortably meets the needs of a small business owner.

This type of software has easy to understand spreadsheets that make it very easy for a small home business owner to balance books and get an idea of the profitability of their home business.

Most of these programs even have fields for important tax return information for the end of the year.

Using software greatly simplify bookkeeping for home businesses, even for someone with no accounting experience.

Some home business owners prefer to do things the old-fashioned way, with a pencil and paper.

With computer hackers and viruses out there, some owners would prefer not to keep their financial records on their computer.

In this case, a general accounting ledger with three columns will work as effectively as the expensive software.

Regardless of which method you use, your accounting ledger needs the following structure.

One column can represent money that is received for the home business.

A second column can be used for money that is paid out on behalf of the home business,

A third column can be used to keep the running balance of your home business.

This accounting system is easy to use and follow, because each day every transaction is recorded in the ledger.

The ledger is also an important record for the tax preparation of your home business at the end of your fiscal year.

Accounting records are a very important part of running a home business.

Just like your personal finances we discussed a couple of weeks ago, if you record your business transactions every day, the annual preparation of reports will not be a mammoth task.

Whether you purchased software or just used an old-fashioned ledger, keeping daily track of business transactions is a very important step toward preparing your annual accounts.

Written by 

Co-Founder & CEO of Link Management Group. An Investor & Coach to Small Business Owners, for the past 30 years I have helped startup and early-stage businesses to enter new markets and achieve sustainable growth of both revenue and profits. I have experience across a diverse range of sectors including central government, information services, software, health insurance, pet products, couture fashion, entertainment and aviation.  How can I help your organisation accelerate growth and achieve its full potential? 

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