The series on standard financial management has been slightly modified after some repeated publications. We are introducing more elements that are reflected in a standard requirement for loan applicants in financial institutions.
Thus an extended portion of the series is starting today with a discussion on book-keeping meaning establishing a standard accounting system for an MSME.
Earlier we had noted the overriding importance of sound financial management for survival and thriving of any business, more for small or emerging businesses. We had also listed the key elements of the sound financial management practices to include, setting up or opening a business bank account; creating and maintaining a budget, establishing an accounting system and bookkeeping method and this would be subdivided into two other practices, viz, account review and establishing a credit control system. The last content on this series focused on creating and maintaining a business budget. In another series, we shall delve into a detailed discussion on budgets and forecasting which gives medium to long term view of the growth of the business.
Today we look at establishing an accounting system for the business.
Accounting (or bookkeeping) is a process of recording the financial transactions of a business. Keeping good records for your business can assist you to apply for finance, review your business activities, manage effectively and comply with tax requirements.
For tax purposes, you are legally required to keep records related to your income, payments to employees, payments for supplies and all inputs into the business and other sundry business expenses.
Very important for the purpose of this topic is that your business cannot have access to loan without an accounting system.
There are two types of accounting methods; Cash and Accrual. Next week we delve into more details on these.