Keeping your company’s books balanced is a vital aspect of running a business. And for an SME, it is even more vital, even though priority usually goes to managing and maintaining day-to-day operations, as well maintained and balanced books will alert operators if financial gaps emerge. Engaging professional bookkeeping services Malaysia from a Malaysia accounting company is a wise option if budget permits. But if such a decision has not been made, then getting to know some accounting tips can definitely help to avoid common mistakes associated with balancing your company’s books and accounts.
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1. Organise Your Company Expenses: Poor recording keeping when it comes to official expenses can lead to tax, accounting, and cash flow issues. Unfamiliar and untrackable entries on the company bank statement is a sure sign of poor record keeping. The first thing that must be implemented is the receipt of every purchase / expenditure that your business makes. Using just one credit card and designating one specific location, physical or digital, to store and save receipts are two ways to help you keep your official expenses organised.
2. Update Your Receivables: When an invoice is issued to a client, a receivable is recorded, in other words, someone owes you a sum of money. When an invoice gets paid by a customer, the amount should be applied, and it should be marked as paid. The importance of keeping good tabs on outstanding balances cannot be overstated, especially for an SME, which often runs into tight cash flow situations. It may be difficult to keep up with a lot of orders, but do not leave too many deposits for reconciling at a later date for too long, as, when tax time comes around, you will be left with many customer deposits in your revenue account and a report of your receivables that do not match.
3. Keep Personal and Business Accounts Separate: While it is not uncommon for some SME owners to use some of their personal funds for official business purposes, they run the risk of overlooking important business transactions, and therefore having a separate bank account for business needs properly distinguishs your business and personal finances, and saves you or your accounts personnel precious time sorting out the transactions for record keeping and tax reporting purposes.
4. Understand Double-Entry Bookkeeping: When your company is using accounting software or old-fashioned physical books, the benefits of double-entry still apply. The basic idea is that whenever you make a purchase for your business, only the expense but also what was gained from the transaction is also recorded. This method of bookkeeping will reflect where your money is going and help you make the best decisions for your business.
5. Chart Your Accounts: Some of the most common and important accounts to keep track of are:
- Payroll Expenses
- Owners’ Equity
- Retained Earnings
These accounts must be adjusted accordingly with every transaction to give you a more complete picture of your company’s finances and financial standing.
6. Prepare Financial Statements: Financial reports combine data from your ledgers and give you a good sense of what the big picture of your business looks like. Key items include cash flow analysis, profit and loss forecast and balance sheet, which should be generated on a regular basis (monthly or quarterly usually). They will help you understand the health of your company from different pertinent angles.
- Balance sheet: snapshot of your business’ assets, liabilities and equity at a specific point in time
- Income statement: income and expenses that took place over a defined period, and also your business’ “bottom line”
- Cash flow statement: the way your cash balances have changed over a period