28 July 2021
Always set up a separate business account right from day one so its easier to track exclusive business incomes & payments and account for them easily. Also helps to maintain clean business credit history & separates business assets from personal ones.
Take out 20 mins every week from your busy schedule, download your business bank & credit card statements and plot the nature of all the transactions against each entry. It will surprise you how easy it is to maintain accounts with some financial discipline.
No matter how insignificant a piece of paper or document might seem, if its relating to your business it needs to be retained, whether its to balance your accounts, to determine tax liabilities or to claim tax deductions!
Money spent on setting up your business also forms part of your business profit/loss statement and is eligible for tax deduction subject to relevant laws, so keep a track of all the expenses you incur in setting up shop.
All expenses INCURRED during the year need to be recorded in that year’s profit/loss statement. This could be different from the actual money PAID during the year since expenses incurred could also mean expenses where payment is yet to be done or expenses for which payment has been made in a prior period (prepaid expense). Same logic for incomes too!
If your business model is to receive money upfront and provide services over a period of time (say over next 3months), maintain a database to track the period over which the money received today needs to be recognised and record it in your books accordingly. Always remember, money received in advance for services yet to be rendered, is a liability not an income!
Just like incomes received in advance, there could be expenses where payment is made upfront for a certain period of time (e.g. website subscriptions). Maintain a record of all such expenses to know the period over which they need to be recognised. Remember, money paid in advance for services yet to be received, is an asset not an expense!
If accounting still doesn't feel like its your cup of tea or seems like an impending task, do not stress yourself. Hire a professional accountant who can take care of your accounts and let you focus on doing what you do best!
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