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Small Business Accounting – A Brief Insight

What is Small Business Accounting? Accounting Information adopts different methods giving rise to Small Business Accounting. It is basically the art and science of maintaining proper and precise accounts of a concern that have employees ranging in numbers from 10 to 249(limit varies from country to country). This form of accounts uses the same book keeping methods buts has a different approach towards Creditors and Cash Flow since smaller businesses require speedy credit collection and constant cash flow. It has gained prominence in most developing countries like India due to the emergence of Small Businesses.

Why is Small Business Accounting needed? Small Business Enterprises like most other enterprises have a number of transactions taking place per day of business. If these transactions are not recorded systematically it would be impossible to ascertain the profitability or financial position of the firm. A business must also publish and declare it’s accounts to various parties like investors, bankers and it’s creditors. A study of these financial statements is also required by certain statutory bodies and tax officials.

What is Accounting Information? One often doesn’t know the complete meaning and nature of Accounting Information. Most companies declare their financial position to their investors by means of Balance Sheets and a Profit & Loss Statement. These statements require constant updates and for that Accounting Information is of prime importance. It is also very necessary for any business to pass on this information to their bank, creditors and investors; hence it plays an important role in small businesses.

The activities included in Accounting Information: The growing importance of Accounting Information makes it necessary to know more about it. Accounting Information System is a derivative of the Management Information System (MIS) which ensures that all accounts are kept up to date and meet all accounting standards. Broadly speaking it is about collecting all the information necessary to compile complete and accurate accounts that a firm may need to show to its bankers, creditors, investors and statutory bodies. Its scope though is very large and so is now referred to as a System.

Accounting Information mainly includes the following:-

Book Keeping: Book Keeping is the process of maintaining the books of accounts with compliance to accounting standards. This includes maintaining Journals, Ledger accounts, Cash Book, Profit & Loss Statements, etc.

Budgeting: This is a process by which budgets for various business activities are set. Budgeting is importance for small businesses due to the capital and possible liquidity constraints.

Cash Flow: It is a method which ensures easy movement of cash or the firms working and projects. A firm must adopt appropriate Cash Flow policies for smooth and constant flow of cash so that it can be utilized gainfully. Small businesses face more challenges while maintaining their cash flow as compared to big companies.

Credit Collection: Credit Collection ensures that all creditors of the firm settle their dues in a timely manner. Credit Collection is important in maintaining cash flow. It is advised to follow a method of constant follow up and reminders.

Finally, Small Business Accounting varies greatly from company to company; some companies may hire Chartered Accountants or Accounting Firms to get a better insight into accounting systems while the others appoint employees to do the same. Ultimately each firm in some way or the other does adopt Accounting Information Systems (AIS).