One thing we can all agree on is that accounting can be intricate, but with some practice, you can manage and carry out the legal obligations that relate to your business. 

The accounting practices you will need to know will vary depending on whether you are operating as one of the following:

• Sole Trader/Self-Employed

• Partnership

• Limited Company 

• Limited liability partnership

Whether you're getting ready to start your own business or you've already launched, learning what practices you need to carry out to adhere to your accounting obligations is essential.

Here we've detailed a simple overview of how you can get things up and running, but for more detailed and in-depth knowledge of accounting practices, have a look at ACCA and the amazing list of courses they have on offer.

To get started, here is a run-through of what you will need to begin your business accounting journey.

1. Open a business bank account

If you're operating as a sole trader, you can use your account, but it is recommended to use a business bank account. It makes things a lot easier when working out your income and expenses – this way, you won't confuse personal transactions with business transactions.

2. Keep your receipts

Although many transactions are now being carried out online, it's important to download, print, and store all of your invoices. Receipts aren't just for filing purposes, but depending on the expense, you may be able to write it off under VAT deductions. You could potentially claim a percentage of your phone bill, computer purchase, rent, travel expenses, hiring transport, accommodation, Wi-Fi, advertising, or food and drinks.

3. Practice bookkeeping 

There are two main bookkeeping methods (cash method and accrual method), but the one we'll be covering is the cash method. This bookkeeping method focuses on when your revenue and expenses are received or paid for. It's great for small businesses because it doesn't track money that's not yet in your account.

4. A payment system

As a small business, you may not take on employees at the start, but instead, choose to work with freelancers. It's a great idea to set-up a payment system, so you can record their details, keep track of each payment, its frequency, and issue payment.

5. Choose a payment method

This is the method you'll use to collect payment owed to you by your customers – otherwise known as your payment gateway. It's how you accept payment regardless of whether you run a market stall or an online business. The method you choose will depend on how you decide to collect money from your customers. Popular options like Paypal and Square are very versatile, allowing you to accept payment both online and offline. For e-commerce, popular options range from Stripe to Shopify.

6. Your VAT obligations

VAT is a significant aspect of accounting, and although it may seem complicated at first glance, it gets easier once you understand your VAT obligations based on your business structure. It can be tricky to work out what expense carries VAT and what doesn't. For instance, some online transactions may use the reverse VAT method, so it's a good idea to lean on professional bodies like the ACCA to learn how to handle your VAT in various circumstances.

Accounting for your business may seem unclear initially, but once you've applied the methods a few times, you'll be using all the jargons, filing, and processing your transactions instinctively.

Now, let's look at the Cash Accounting method:

This bookkeeping method recognizes your revenue and expenses when they are received or paid. 

Cash accounting is a single-entry system, used when a business does not offer credit, but instead, payment is processed immediately by cash, bank transfer or cheque.

Here is an example of a small business owner who uses the cash accounting method to manage income and expenses:

As shown in the diagram above, this small business owner logs each sale and expenses, by month and date, whilst keeping track of their running bank balance.

This accounting method does not require any complicated accounting software and can be managed in a notepad or excel spreadsheet. You get to see in real-time what's coming in and going out of your business bank account so that you can plan better. Why not draw out this table in a notebook and start logging in your daily transactions.

Ready to learn more and develop a full understanding of your finance? Discover courses from ACCA that are geared towards empowering you whilst giving you the skills you need to understand your money and make better financial decisions and future-proof your business.