Startup Accounting is all about keeping accurate records of the financial transactions to identify the opportunities for growth and improvements. It is essential for startups to have a good accounting foundation so that they stay organized and be efficient in managing their expenses as they grow.
The success of a startup is based on efficient budget management, maintaining and balancing the books and having an efficient financial strategy.
When starting a new business, as a startup founder you need to have a structured method of book keeping to record the money that is coming in and going out for your business. This helps you in keeping a track of your revenue and expense.
Here are the basics of bookkeeping that every startup owner should do:
Maintaining Journal Entries
The journal helps you to have a chronological record of your transactions. The journal entries consist of transactions such as sales receipt, purchase order etc. Each transaction is assigned to a specific account using journal entries and the changes in the accounts are recorded using debits and credits.
Posting to Ledger Accounts
It is a journal in which company maintains the data for all transaction and financial statements. Ledger is also collection of related accounts. This includes Cash Account, Accounts Payables, Accounts Receivables and General Ledger. When there is a change in the accounts, account balances are changed in the appropriate ledger accounts. The chronological information of journal is summarized in the ledger on an account by account basis.
Trial Balance
Trial balance ensures that the journal entries that have been recorded are posted correctly. It ensures that the debit and credit balances in the account matches. If this doesn’t happen, then there are few errors which we need to find.
Reconciling Bank Statements
You as a founder should reconcile the bank statements on monthly basis to ensure that your records are accurate. If this is not your thing, you need to hire a book keeper to do this. It is an important task that should be done regularly i.e., monthly basis. In case the amounts in the bank statements and our records do not match, adjusting entries are made to modify account balances. (Adjusted entries are usually unrecorded expenses and revenues.)
Profit and Loss Account
It shows the net income and loss for a particular accounting period. All your revenues and expenses are posted in the P&L account.
Book keeping provides startups detailed, accurate and timely records that assist in the decision-making. Use the balance sheet to evaluate the financial health of your business. As your startup grows and starts making more revenue, your record keeping system will become more complex and crucial to maintain. This is why it’s important to start with a well-organized system as you run your business.
