As the owner of a small business, you will be facing several challenges and one of them will be accounting and finance. Not having any prior experience, having an in-house accounting team being expensive, and the natural complicated nature of the subject make it challenging.
If you wish to overcome the issue, gathering relevant information and developing a deeper understanding will help.
Table of Contents
Accounting and Different Types of Accounts
Source: https://legendeducation.ae/accountant/
Accounting is used for tracking all the financial transactions of a business. It also helps in summarizing the operations and financial status of a business over a period. The different types of accounts are:
- Personal account
- Real account
- Nominal account
Personal account – A personal account is a general ledger account linked to all the people, businesses, or organizations. They are usually affiliated with an individual, corporation, firm, or group of associates.
The different types of personal accounts are:
Natural persons – These are the accounts associated with an individual, which means the personal account you have for keeping your money safe.
Artificial accounts – These are the accounts linked with businesses and organizations, which means the accounts you have set up for your business.
Accounts of representatives – These are the accounts that represent a specific employment type, which means an outstanding wages account, prepaid expense account, and outstanding interest account fall under this category.
Real accounts – The real accounts are specifically set up for handling assets, property, and possessions. The features of these accounts can be biological or nonphysical. Hence, they can be categorized into two subcategories, tangible real accounts and intangible real accounts.
Tangible real accounts – These accounts include physical assets that can be touched, such as building accounts, cash accounts, inventory accounts, and more.
Intangible real accounts – These accounts handle assets that do not have any physical presence and cannot be touched. Such assets are goodwill, patent, copyright, trademark, and such.
Nominal account – These are the types of accounts which deal with revenue and expenditure. Received commission, rent, salary, conveyance, wages, and such items fall under the purview of nominal accounts.
Apart from the basic, there are some additional account types, and they are:
- Cash accounts – Used for keeping track of all the cash transactions, payments, withdrawals, and deposits made for the business
- Income account – Used for record of all the income sources of the business
- Expense account – Used for tracking all the expenses of the business
- Liabilities – Used for tracking any debts or loans the business has
- Equities – Used for keeping records of the investments and stocks-related earnings of the business
The days of feeling out of depth regarding finances are over, because new technology is here. It will help you with GST and Non-GST bill creation, inventory management, offer business management on the go and more. In short, all the accounting requirements of your business will be handled, minus the hassle and huge expense. It will simplify your business.
Apart from accounting, you need to understand bad debts journal entry and how it can impact your business. This will help create reliable financial statements and a stable financial environment.
What Is Bad Debt, and Why Does It Need to Be Recorded Properly?
Source: https://xendoo.com/bad-debt-expense-formula/
As a business owner, if you believe a particular payment cannot be obtained from the client, it becomes bad debt. This amount is then mentioned as expenditure on the company’s financial records whenever it happens.
Below are the bad debt write-off methods:
Direct write-off method – When it becomes clear that a client won’t be paying the bill, the business may credit the value of the invoices towards the bad debt expenditure account.
Provision method – Under this method, the business can change the value of a bill as a provision for the account for doubtful debts when it becomes clear that debt recovery is impossible.
The Types of Bad Debt
Source: https://online.hbs.edu/blog/post/bad-debt-provision
The different types of bad debts are:
- Personal loan
- Credit card loan
- Car loans
- Payday loan
- Moneylender loan
- Service provider and trader nonpayment
Though your business aims to earn a profit, there should be a provision for the possibility of loss, and bad debt is one such component. It is impossible to get rid of bad debt entirely, so it is better to be prepared.
A smart business management app focusing on simple financial tracking facilities will help you make smart financial decisions and keep track of your hard-earned money. It is the modern business owner’s smart and effective solution for accounting and finance. So, try it today and give your business the boost it needs.
