This includes setting up the accounting system, recording transactions, preparing financial statements, and closing the books when the year ends. However, things are a bit easier for small businesses compared to medium-sized and big businesses, so let’s have a look at what it means to have a proper accounting cycle when you’re just starting.
What is the Accounting Cycle for Small Businesses?
There are eight important steps in the accounting cycle that should be followed:
Identify the transactions
Record the transactions in a journal
Posting to an account in the general ledger
Calculating the trial balance
Analyzing the worksheet to identify discrepancies and errors
Adjusting journal entries
Generating financial statements
Closing the books
All businesses must go through each of these steps to make sure their bookkeeping is accurate and their financial previsions realistic. The good news for small businesses is that they can use accounting solutions designed for small businesses to make bookkeeping easier.
This also means you may not need to have an accountant on site (hired as your employee). Still, even with the help of well-designed accounting apps, it’s important to have a thorough understanding of financial services accounting to avoid errors when classifying transactions and preparing financial statements.
This is why most businesses work with specialists in finance and accounting who look over their books, journals, and other records to ensure compliance with regulatory requirements.
Year-end Accounting Checklist for Small Businesses
Year-end accounting checklists are an important part of keeping your business finances organized and up-to-date. They allow you to stay on top of all important accounting tasks required to close your books and budget for the upcoming year.
Plus, when you’re up to date with your year-end accounting checklist, you can save time, money, and a headache in the future.
Here’s what more small businesses have on the accounting checklist for the last month of the year.
1. Review Your Books
It's important to stay on top of your bookkeeping and make sure all receipts, invoices, and payments are recorded consistently throughout the year. Fortunately, modern software has made this process much easier than it used to be. However, even if you've been keeping up with your books, it's still a good idea to do a quick review.
Make sure to check for any less frequent expenses that may have been overlooked, such as pre-paid annual membership dues or insurance. Don't forget to include any legal fees or interest statements from investments that your business has made. Finally, make sure everything is recorded correctly in your software.
By taking the time to review your bookkeeping and make sure all expenses are accounted for, you'll be able to rest easy knowing that your books are in order and up to date.
2. Review Your Financial Statements
Analyzing your income statement and balance sheet is an important part of running a successful business. It allows you to check that everything is running as it should and that nothing unexpected or out of the ordinary is happening.
Check your income statement for a complete list of revenue and expenses, and check your balance sheet to get a better understanding of your liabilities, assets, and equity.
3. Check Your Inventory Off the List
If your business carries an inventory, year-end inventory counting is a necessary task.
This involves physically counting each item in the inventory and recording its value to get an accurate reflection of what you have and what it’s worth. Depending on the size of the inventory, this process may take a lot of time and staff in order to complete it.
To ensure that the count is done in an efficient manner, it is important to plan ahead and allocate the necessary resources. Doing so will help to ensure that the inventory is correctly recorded and accounted for.
Time for Reflection and Planning
Once your accounting cycle and checklists for the year are done, you should take a step back and reflect on the success and failures of the business. Evaluate the financial statements and see if the goals that were set at the beginning of the year were realistic and achievable. This is an important part of the evaluation process and can help shape the goals and strategies for the upcoming year.
What can Mainvest do for your business?
Mainvest allows you to raise capital from your community, without giving up any ownership or control in the process. By running a Mainvest campaign, you can engage the community and get buy-in from local stakeholders. If you are ready to take the next step as an entrepreneur, reach out to us here.