SETUP ACCOUNTING SYSTEM

Few topics in small business are as confusing as accounting, especially to the new business owner (also known as “bookkeeping” or “doing the books”). This section is dedicated to helping the small business owner understand accounting and provides some helpful resources.

What is Accounting?

The dictionary lists accounting as “A precise list or enumeration of financial transactions.” For the most part, that’s all that accounting is, a list of financial transactions in your small business. It’s a method for you to track the money coming into your business and the money going out.

Why is Accounting Important?

Obviously, accounting is important because you want to know if your business is making a profit. Also, the small business owner wants to be able to look at sources of income and expenses and make decisions based on that information. Using accounting software, the business owner can generate reports on “profit and loss”, “cashflow”, the “balance sheet” and dozens of other reports that can help him/her get an overall picture of how the business is doing now or in the past.

Also, many forms require tracking of money for sales taxes, payroll and income tax purposes. In fact, a good accounting system can make the filing of these government forms much easier and less time consuming.

How do I Setup My First Accounting System?

NOTE: If you are not financially-inclined, we sometimes recommend you speak to an accountant or bookkeeper, especially when initially setting up your accounting system. This way, they can help you setup your accounting system properly the first time so you don’t make mistakes that will need to be corrected later in the year when filing taxes or other government forms. Our Recommended Resources section below includes resources for finding an accountant nationwide.

Pick An Accounting Method

The first decision to be made is which type of accounting method to choose, there are 2 choices:

The Cash Method (or Cash Basis) — this means that you count income when you actually receive it (either as cash, credit card charges or check) and your expenses are counted when you actually pay them. This is the most common method for small businesses, especially those that take immediate payment for a product or service (credit card, check, cash, etc.)

The Accrual Method (or Accrual Basis) – this means that you count income when a sale is made (regardless if you actually receive the money for it) and expenses are counted when you actually receive the good or service (instead of paying for it immediately). This method is common for larger businesses or small businesses that utilize “invoicing” and frequently deliver a product or service before being paid for it.

Choosing a Method

The accrual method is generally considered to give you a more accurate picture of your company’s financial situation but requires you to take extra steps like maintaining accounts receivable and accounts payable records. The cash method is generally easier to maintain and is the preferred method for small businesses.

Choose a Method for Recording Transactions

After you’ve decided on an accounting method, the next step is to decide how you are going to record transactions. You have basically 2 choices:

Hand-Recording Transactions — you actually hand-write each transaction in a ledger.

Software — you enter transactions in a software program which then automates many routine tasks.

By far the most popular method is software. There are dozens of accounting software packages and most of them will help you maintain your books as well as automate things like payroll and reports.

BOOK KEEPING

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, such as the single-entry bookkeeping system and the double-entry bookkeeping system, but, while they may be thought of as “real” bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.

Bookkeeping is usually performed by a bookkeeper. A bookkeeper (or book-keeper) is a person who records the day-to-day financial transactions of a business. He or she is usually responsible for writing the daybooks, which contain records of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring that all transactions are recorded in the correct daybook, supplier’s ledger, customer ledger, and general ledger; an accountant can then create reports from the information concerning the financial transactions recorded by the bookkeeper.

The bookkeeper brings the books to the trial balance stage: an accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.

MANAGEMENT REPORTING

Finance and IT are no longer the bottlenecks when business users receive the information that they need directly. Workday provides a modern financial reporting experience, freeing users from spreadsheet maintenance and manual processes. Work tags deliver key insights to executives and managers, equipping them with the information they need. The result is financial and operational insight in business terms—and the ability to drive more informed decisions.

  • View management reports about current business operations in real time
  • Get the most accurate and up-to-date analysis by generating management reports from the same transactional data used for financial statements
  • Report across any aspect of your business such as legal entity, cost center, business site, team, or any other dimension
  • Equip managers with the financial information in business terms to help them make better informed decisions
  • Composite Reporting combines financial and HCM data in Workday to provide the power and flexibility of a spreadsheet, with enterprise-class control and performance

PAYROLL PROCESSING

When you want to go beyond the mentality of just giving out paychecks to your employees, Data Stack’s payroll services can bring about new business insights and help you focus on what you do best – running your own business. Our payroll management services allow you to take your human resources management to a higher level.

As one of the top payroll providers in India, we understand how important it is for your organisation to ensure error-free payroll management activities. With our extensive range of services, your organisation can enjoy a payroll process which is timely and accurate.

Here are some of the payroll services that we provide:

  • Employee Self Service (ESS): Online technology for employees to view salary slip, submit IT declaration, decide FBP, submit query.
  • Online Access to View/Print Salary Slip
  • Automated Attendance, Leave Import/Export Solution
  • Web-based Leave Solution
  • Reimbursement Management
  • Replace Excel to Web-based Processing of Payroll, Reimbursement, F&F, Reports Generation, E-challan Generation

Effective payroll administration can be a catalyst for this transformation. When you don’t want to manage all payroll processes in-house, you can think of payroll outsourcing to an experienced provider such as Data Stack.

As a reliable payroll outsourcing company, we offer better and more efficient payroll management process for your organisation.

BENEFITS OF OUTSOURCING PAYROLL

Some of the benefits of outsourcing payroll management include the following:

  • Fast turnaround
  • Assistance throughout the entire life-cycle of the employee, right from the day of recruitment to exit
  • Streamlining of all payroll processes
  • Reduced investment in IT infrastructure
  • Well thought-out resource deployment
  • Strict adherence to compliance and statutory requirements
  • Error-free documentation and reports
  • Solid business intelligence that helps top management with their strategic initiatives
  • Low-risk of penalties due to non-compliance
  • Speedy and efficient resolution of all employee issues

CUSTOMIZED SOLUTIONS TO ALL COMPANIES

Managing payroll entirely within your organisation can be a headache because of stiff penalties for non-compliance to statutory requirements, and other issues that are not straightforward. It may seem simple from the outside, but many companies that do their own payroll processing ultimately discovers that it may not be all that cheap and simple — especially when you consider the time that is spent in managing the entire process.

For many organisations, payroll outsourcing offers an attractive alternative to in-house processing. It can provide a simpler, affordable way of paying employees, filing taxes, and performing other activities associated with payroll administration.

We provide innovative and completely customized solutions to all organisations regardless of their size and the domain that they are in. Our payroll solutions will directly address all the requirements of payroll management. We help businesses enhance their competitive advantage with the help of customized solutions built on the foundation of vast domain experience, qualified professionals, and advanced technology. This allows us to offer our clients the confidence to meet all their business challenges.

PAYABLE MANAGEMENT

Account Payable Management refers to the set of policies, procedures, and practices employed by a company with respect to managing its trade credit purchases.

In summary, they consist of seeking trade credit lines, acquiring favorable terms of purchase, and managing the flow and timing of purchases so as to efficiently control the company’s working capital.

The account payable of a company can be found in the short-term liabilities section of its balance sheet, and they mostly consist of the short-term financing of inventory purchases, accrued expenses, and other critical short-term operations.

WHY COMPANIES FINANCE THEIR PURCHASES

Purchasing inventory, raw materials, and other goods on trade credit allows a company to defer its cash outlays, while accessing resources immediately.

When managed appropriately financing purchases can contribute to effective working capital management.

A company that employs best practices with regards to payable management can reap the benefits of stable operating cycles that provide a stable source of operating cash flows and place it in a good liquidity position with respect to its competitors.

OBTAINING TRADE CREDIT

Companies seeking trade credit must demonstrate that they meet certain criteria with respect to their creditworthiness and financial condition.

This typically entails credit analysis by the supplier.

The financial statements of the company are analyzed, paying particular attention to its working capital, short-term liquidity and short and long-term debt to gauge its ability to meet obligations.

The final product of such analysis is usually some form of a credit risk rating.

PURCHASE AND PAYMENT TERMS

The purchase and credit terms obtained will depend on the company’s risk assessment above.

Companies that are financial stable can benefit from favorable terms (e.g. lengthy repayment periods).

For example, a company might be offered a sales on credit term of 5/10 net 30 implies a 5% discount on the purchase amount if payment is made within 10 days of billing date.

If the discount is not taken, the full invoiced amount is due in 30 day.

MANAGING PAYMENTS

After entering into purchase agreements with a supplier, the company has the responsibility of fulfilling its payment obligations.

The Accounts Payable department is accountable for this function, and performs tasks such as communicating with suppliers, sending payments and reconciling bank records, as well as updating and performing related accounting entries

Managing payables also include the expense administration with respect to the company’s own employees.

Expenses such as employee travelling, meals, entertainment, and other costs related to doing business for the company are administered by the payables department and must be managed appropriately.

EMPLOYEE TAXATION HANDLING

If you are self-employed, visit the Self-Employed Individuals Tax Center page for information about your tax obligations.

Depositing and Reporting Employment Taxes
You must deposit income tax withheld and both the employer and employee social security and Medicare taxes. You also must report on the taxes you deposit, as well as report wages, tips and other compensation paid to an employee.

Employment Tax Due Dates
You must deposit and report your employment taxes on time.

Correcting Employment Taxes
“X” forms are used to report adjustments to employment taxes and to claim refunds of overpaid employment taxes.

Updating Your Business Address
There are several ways to notify the IRS that your address has changed.

AUDIT ASSISTANCE

Audit Assistance is a complimentary part of the H&R Block Guarantee. We’ll explain the position taken by the IRS and advise you of your options to get your issue resolved. (We’ll help if we didn’t prepare your return, just call your local office for a fee schedule.)

We’ll help with:

  • Reviewing the tax authority notice or inquiry and explain what it means
  • Researching issues involved
  • Assisting you with responding the IRS and assembling documents and records for the tax audit
  • Reviewing the tax audit findings and explaining them to you
  • Explaining the appeal process and other options available to you in the event you disagree with the tax authority’s findings

Tax Audit Representation

For an added fee, one of our highly trained Enrolled Agents will represent you and communicate with the taxing authority on your behalf in an audit proceeding.

Enrolled Agents are Tax Professionals who have demonstrated special competence in tax matters and can represent taxpayers before the IRS.

IRS Tax Audit Representation includes all services from Audit Assistance, plus:

  • Communicating directly with the tax authority on your behalf
  • Answering questions for the taxing authority about the preparation of your tax return
  • Acting on and asserting arguments on your behalf
  • Challenging the tax authority’s position, if necessary
  • Following up regarding any outstanding issues or further documentation that has been requested
  • Researching any issues that may come up during the IRS tax audit
  • Meeting again with the tax authority to resolve any further issues
  • Negotiating and settling claims with the tax authority
  • Assisting with the appeals process

EXPENSE CLAIM MANAGEMENT

Travel policy
If you are implementing an expense management process then take the opportunity to re-launch the travel policy – it is often a neglected and forgotten document that is not used by travelers or finance.

Re-visit the policy to make sure it is accurate and fair. Sometimes the person or persons writing the document never travel so they don’t appreciate some of the challenges of being on the road.

Then implement the policy and rules into your process to ensure you maximize the travel spend. And above all make sure everyone has easy access to the policy.

Review the workflow
The temptation when setting up an expense management system is to look at what the current process is and then try to automate that! However when people are moving paper about they often get into bad habits. Look at the process with a critical eye and try to implement a workflow that is going to be easy for everyone to use and understand.

Harmonization is key
It is important when implementing an expense management process to design a standard solution for the business as a whole. Then roll out this standard across the organisation and only allow deviations for legal regulations and (if they can be fully justified) locally.

If you simply ask everyone what they want you will end up with a complex system that is hard to follow and maintain. There is a tendency to add complexity to the process to ensure compliance but it can have the opposite effect – if a user finds the process hard to understand or complex to use they will simply find a workaround!

Appoint a Project Manager with the power to make decisions
Travel impacts on every aspect of the process and often several departments need to be consulted; finance, HR, Travel, IT etc. And they will all have their own agenda. Remember you can’t please all the people all the time…. Therefore you need to have a project manager/sponsor with overall responsibility and the ability to make decisions.

Keep it simple for the Employee when submitting their claims
When deciding what information employees need to submit along with their expense claims make sure the information is actually required and will be used.

For example it might be important to get the supplier for hotel spend as this is a high ticket value but do you really need the names of the taxi companies? Tailor the information required to the type of spend.

Who should approve?
Many companies fall into the trap of requiring multiple-approvals for travel and expense spend. Approval before you go, approval for spend A from person A, approval for spend B from person B, escalated approval etc. When embarking on an expenses management process, take the time to look at your approval workflow and approval limits. Then set up a process that requires as few approvals steps as possible to speed up the process and make it easier for all to follow

Try and audit an expense claim before it is paid to the employee!
If you carry out the audit after manager approval/payment and you find there is spend that is fraudulent or outside the travel policy or indeed if the employee simply made a mistake and over claimed on a receipt, it is very difficult to recoup the money after the fact. If you query the employee for any extra information or clarification for an unclear claim there is no incentive for the employee to respond – after all they have already received their money.

STATUTORY COMPLIANCE

Data Stack Enterprises Consultants takes care of all aspects of statutory compliance from obtaining the license to handling inspections by government officials. Maintaining the registers, records and filing returns along with due payments will be taken care of by Data Stack Enterprises. We also facilitate the client to obtain the necessary exemptions for un-interrupted and hassle-free operations. We will apprise the client of any changes in the legislations for appropriate and timely actions to ensure complete compliance.

In this way we provide various compliance services in a cost effective and efficient manner. Our teams of Professionals are experts in Statutory Compliance services to provide Best Quality Statutory Compliance Services to our clients at a faster turnaround time.

We offer a full range of business organizational planning and consulting services, right from formation of legal entities to procedural compliance. Our spectrum of services includes:

  • Statutory Registration (PF / PT/ Shops & Establishment.)
  • Remittance & Filing of returns towards
    • Professional Tax
    • Provident Fund
    • Employee State Insurance
    • Gratuity & Superannuation
  • Statutory interface on a continuous basis

Provident Fund:

  • Providing PF Reports
  • Remittance of Challans
  • Preparation & Filing of Monthly returns
  • Transfers, Withdrawals and Annual Returns
  • Facilitating PF Inspections

Employee State Insurance:

  • Processing of Declaration Forms
  • Obtaining ESI Cards
  • Remittance of Challans
  • Preparation & Filing of Monthly returns
  • Facilitating ESI Inspections

Profession Tax:

  • Providing PT Reports
  • Location wise Remittance of Challans
  • Preparation & Filing of Periodical returns
  • Organizing PT Assessment
  • Representing client at PT Hearings

Gratuity:

  • Setting up of Gratuity Trust
  • Maintenance of Employee Database
  • Remittance of Gratuity Liability
  • Assistance in settlement of Claims
  • Regulatory Compliances

Client Benefits:

  • Compliance Audit: One-time audits to assess the level of compliance that is in place, including PF, ESI stipulations, regulations and suggestions to improve the level of compliance
  • Fast and Accurate: We deliver large volumes of work on time, every time.
  • Timely compliance with various statutes and labor laws.