Businesses or individuals adapting to financial record keeping need to follow some of the basic rules or principles of accounting as in any other activity. It better not to go ahead with accounting without following the basics or the Generally Accepted Accounting Principles(GAAP), that may rather end in messing up with finances. Apart from this by adhering to proper accounting guide lines makes both the internal and external customers confident about an organization.
Most accounts of businesses are based on two methods of accounting the cash basis and accrual basis. In cash basis accounting the transactions are recorded based only on the transfer of cash, like when the cash is received it is recorded instantly, expenses are recorded only when the real payment happens. In the accrual method whether the cash is paid or not the transaction is recorded and the credit owed to the company and credit owed by the company is recorded.
Almost most of the small business people follow the cash method as the number of transaction will be less as the information of payments can be noted down easily. But in case of large corporations accrual method is most preferred. Small business owners can manipulate their revenues from the eyes of tax authorities by recording the cash received to the next financial year to evade tax. But large corporations cannot do this because of large amount of cash transactions and the other factor is the fear of loosing their reputation with stakeholders if tracked by the government agencies.
Whatever accounting principle is followed it is mandatory nowadays to have an accounting information system in place. Small business people will find difficulty in investing for this kind of a setup. To get more functionality and accuracy as expected with information system, but always with a higher price tag.
Numia a simple online service that is aimed at small business accounting with the flexibility of using both the cash and accrual basis of accounting. Even though it is aimed at small business accounting it can be used by even larger companies due to fact that it supports accrual basis accounting.