If you’re thinking about going freelance, or you’ve just started up your own business, then you’ll need to know the basics. Here we cover a couple of the things you need to know to get started.
Accounting v Bookkeeping
Many might assume that these are the same thing; newsflash, they aren’t. Bookkeeping is the recording of EVERYTHING. If imagine bookkeepers holding a calculator and a wad of receipts, you wouldn’t be far off. They keep track of sales made, bills paid, capital gain etc. individually and then summarize them periodically.
Accountants use the data bookkeepers input. They prepare the financial statements, management reports and tax returns based on the data entered.
This is the calculation of gross wages or gross earnings, which are the total wages and salaries earned by every employee every pay period. The correct amounts of income tax, social security tax, and other deductions from gross wages have to be determined.
Essentially, payroll is a complex and critical function, which is why many businesses outsource payroll functions to companies that specialize in this area *cough cough*.
Self-employed financial accounts
The self-employed still need to produce accounting records once per year, although they don’t have to be quite as extensive as company accounts. This is used to complete the self-assessment tax return.
If you are self-employed it may be a good idea to set your financial year end to the 31st March, in line with the nominal tax year as it can relieve some pressure when finishing your tax return.
Company financial accounts
At the end of a company’s financial year, every limited liability company is required to submit a set of accounts. These normally consist of a profit and loss account, balance sheet and cash-flow statement. These accounts are then publicly accessible and can be accessed by anyone for a small fee.
Small companies can produce abbreviated accounts; check with your accountant as to the reports which you need to submit for your small business.
Your financial accounts will enable investors to check the performance of your company. The bank may also require a copy to help secure overdrafts or small business loans.
Have these helped? Leave comments below with your accounting experiences!