Accounting for Small

business
Accounting
• Accounting is the process of recording financial transactions
pertaining to a business. The accounting process includes
summarizing, analyzing, and reporting these transactions to oversight
agencies, regulators, and tax collection entities. The financial
statements used in accounting are a concise summary of financial
transactions over an accounting period, summarizing a company's
operations, financial position, and cash flows.
Objectives of Accounting
1. Systematic Recording of Business
Transactions:
• A systematic and complete record helps the management to receive
any retrieve information easily and in time. However, in every
business there are numerous business transactions and it is not
possible for the management to keep in their mind all business
transactions.
2. Ascertainment of Results
• The main purpose of any business is to earn profit. For the
ascertainment of profit earned or loss sustained by the business
enterprise, all incomes and expenses are to be worked out and
presented in a separate statement which is called Manufacturing,
Trading and Profit & Loss Account.
3. Ascertainment of Financial Position:
• The aim of showing financial position can be achieved by preparing
Balance Sheet of the business enterprise. Balance Sheet is a
statement of assets and liabilities. The resources owned by an
enterprise (Assets) and claims against such resources (Liabilities) are
shown in the Balance Sheet.
4. Communicating Information to Various
Users:
• In addition to the management, there are a number of other users
who may be interested in knowing the information about the financial
soundness and the profitability of the enterprise.
Need for Accounting
Book Keeping
• Bookkeeping involves the recording, on a daily basis, of a company’s
financial transactions. With proper bookkeeping, companies are able
to track all information on its books to make key operating, investing,
and financing decisions.
• Bookkeepers are individuals who manage all financial data for
companies. Without bookkeepers, companies would not be aware of
their current financial position, as well as the transactions that occur
within the company.
Single entry book keeping
• A single entry system records each accounting transaction with a
single entry to the accounting records, rather than the vastly more
widespread double entry system. The single entry system is centered
on the results of a business that are reported in the income
statement. The core information tracked in a single entry system is
cash disbursements and cash receipts.
Format of single entry book keeping
Account
Description Date Notes Expense (Debit) Income (Credit)
Balance

Starting
6/1 2,000
Balance

Rent 6/3 800 1,200

Sales 6/8 500 1,700

Supplies 6/20 200 1,500

Ending Balance 6/30 1,500

Double entry book keeping
• Double Entry Accounting System is an accounting approach under
which each and every accounting transaction requires a
corresponding and opposite entry in the accounting records and the
number of transactions entered as the debits should be equal to that
of the credits.
Example
• Annie purchased a laptop worth $5,000. She paid cash for the same
from all the savings she had made for this. Hence, the entries for this
date should be:
Accounting Cycle
• The accounting cycle is a collective process of identifying, analyzing,
and recording the accounting events of a company. The series of steps
begin when a transaction occurs and end with its inclusion in the
financial statements.