How to Set Up Your New Company’s Accounting System!

March 15, 2019

Congratulations on your new business venture! While this is an exciting time for you, it is necessary to make sure that your finances and accounting practices start and remain in good standing through preparation and execution. That is why any Encino Tax Advisors will recommend implementing an accounting system immediately to track cash flows, profits and losses. The way to start that process is by following two simple steps: (1) pick an accounting method and (2) record all transactions.

Picking a Methodology

An accounting method refers to the way that you count income and expenses. Most Encino Tax Consultants will explain that there are two methodologies for accounting.

1.Cash:

In this method, you count only what you receive and spend, meaning that you only account for physical cash transactions. This means that income is recorded when you accept the cash, check or credit charges, and that expenses are counted when they are actually paid. This method is ideal for small businesses that deal with immediate sales rather than invoicing.

  1. Accrual:

As all Encino Tax Advisors would explain, this method refers to the counting of income and expenses regardless of when money is exchanged. This means that invoiced sales are recorded before payment and that expenses are counted upon receipt of the good or service. This method is typically used by larger businesses and any business operating through invoicing.

Recording Transactions

Transactions can also typically be recorded in one of two ways: (1) by hand or (2) in software. The use of software tends to be the preferred method nowadays due to convenience, ease of use and security. You can reach out to local Los Angeles Tax Preparation services for opinions and insights into both accounting methodologies and transaction recording software.   

Accounting is a critical and foundational element of your new business, and it is vital that this operation is accurate and set up correctly. You can reach out to your local Encino Tax Advisors for assistance in setting up your accounting system and for advice on financial planning moving forward.

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