Whenever a company makes a sale, pays a bill or engages in any other type of transaction, it needs to be recorded. Many companies in Texas and elsewhere use software programs to keep track of such accounting.
However, whether you enter transactions manually or let a computer do so, you’ll need to follow established accounting rules.
Understand your fiscal year
If you’re a sole proprietor, you’ll likely use the typical calendar year as your fiscal year. Any transactions between Jan. 1 and Dec. 31 are accounted for during that period. However, corporate entities and seasonal businesses often use an alternate fiscal year. For instance, your company may decide that its year will start in May and end on the last day of April. In such a scenario, business transactions that occurred in February would be considered as if they happened in the prior year as opposed to the current calendar year.
Cash and accrual methods
The cash method of accounting states that you record income as you receive it and expenses when you pay them. The accrual method records income as it is earned and expenses as you incur them. This is done by having an accounts payable and accounts receivable section in your ledger. Typically, the cash method is used by smaller entities while larger companies often use the accrual method.
Keeping quality records may make it easier to obtain a loan or an investment in your company. It may also make it easier to obtain a favorable outcome during a tax audit. You may choose to keep records on your own or seek the help of an outside party to provide this service.