Accounting is critical for any business or organization. It provides vital information about a company’s financial health and performance says Aron Govil. Without accurate accounting, it would be difficult to make sound business decisions, track progress, or measure success.
If you’re thinking of starting your own business, or are already running one, then you’ll need to get to grips with the basics of business accounting. In this article, we’ll give you a crash course in all things financial, from bookkeeping and VAT to tax and annual accounts.
There are many different aspects of accounting, but some of the most important include bookkeeping, auditing, and financial reporting.
Let’s take a closer look at each of these:
Bookkeeping is the process of recording all of a company’s financial transactions. This includes sales, purchases, receipts, and payments. Bookkeeping is important because it provides a clear record of a company’s income and expenses. This information can be used to make informed decisions about where to allocate resources and how to manage finances.
The first step in any good accounting system is bookkeeping. This involves keeping track of all your business’s financial transactions, including income, expenditure and anything else that affects your bottom line.
There are two main ways to do this: manually, using paper records and ledgers; or electronically, using accounting software. Whichever method you choose, make sure you keep on top of your records on a regular basis, as this will make preparing your accounts much easier come tax time.
Value Added Tax (VAT) is a tax levied on most goods and services in the UK says Aron Govil. If your business is registered for VAT, you will need to charge it on everything you sell, and then pay it over to HM Revenue & Customs (HMRC).
You can register for VAT voluntarily if your turnover is below the current threshold (which is £85,000 for the 2019/20 tax year), but if you do this you won’t be able to reclaim any VAT you’ve paid on your own purchases.
As well as VAT, there are a number of other taxes that businesses have to pay, including corporation tax, income tax and National Insurance.
Corporation tax is a tax on your business’s profits, and is payable to HMRC each year. The current rate is 19%, although this will fall to 17% by April 2020.
Income tax is charged on the money your business brings in, and is payable to HMRC each month or quarter, depending on how much you earn. The rates vary depending on how much you earn, but start at 20% for taxable incomes of £11,850 or more (£46,350 for higher-rate taxpayers).
National Insurance contributions are charged on the money your business brings in, and are payable to HMRC each month or quarter. The rates vary depending on how much you earn, but start at 12% for taxable incomes of £166 or more (£962 for higher-rate taxpayers).
As well as keeping on top of your taxes, you’ll also need to prepare annual accounts. This involves collating all your financial information for the year. And presenting it in a format that is easy to understand.
Your annual accounts will show whether your business has made a profit or a loss over the course of the year, and will be used to calculate how much corporation tax you owe explains Aron Govil. They will also be used by banks and other financial institutions to assess your business’s creditworthiness.
Preparing your annual accounts can be a complex task. So it’s a good idea to get professional help from an accountant or bookkeeper.
Auditing is the process of examining a company’s financial records. To ensure that they are accurate and compliant with laws and regulations. Auditors may also provide recommendations for improving financial reporting.
Financial reporting is the process of creating reports about a company’s financial performance. These reports can be used by shareholders, creditors, and other interested parties to assess a company’s financial health. Financial reports typically include balance sheets, income statements, and cash flow statements.
This is just a brief overview of some of the key aspects of business accounting says Aron Govil. For more detailed information, please consult a professional accountant or bookkeeper.