Preparing Your Business for EOFY 2021

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Let’s be honest: Preparing for the end of the financial year (EOFY) makes your brain hurt. Tax time is simply a pain in your you-know-what. Between unexpected tax bills and finding out your books are less organised than you thought—unpleasant surprises seem to be around every corner. Even if all goes well, the process is still laborious. 

EOFY prep can require catch up bookkeeping when you’re not up to date — filling information gaps for your accountant and looking for lost receipts. Switching to real-time bookkeeping and oversight sets you up to have better reporting for FY 22. Good bookkeeping can equal less tax and a smoother compliance process. Visory can help. 

5 ways to prepare your business for EOFY

In Australia, with EOFY  just around the corner, your business has the chance for a fresh start on July 1 each year. Here are five tips for keeping your headaches to a minimum. 

Organise your records

The best way to make EOFY painless is good record keeping. Ideally, you’ll do this throughout the year. However, if you’re scrambling this year because COVID turned some things upside down, it’s not too late to organise your paperwork. Make sure you hit these key points:

  • Write down all due dates. Lodging your tax returns and records late can result in fines or make your taxes incomplete. 
  • Gather receipts. To be prepared for EOFY, you will need everything from sales records, credit card statements, bank statements and receipts. Anything you tracked in accounts payable or accounts receivable will need to be reconciled and reported. 
  • Organise employee records. You’ll also need to find your records for all wages paid and current superannuation details. PAYG payment summaries, too, because these reports must be lodged at the end of the financial year. 
  • Reconcile bank statements. Most banks will provide records of each transaction. Make sure you have a full report for all business bank accounts on hand as you prepare your end of year financial reports. 
  • Balance the general ledger. Has your ledger been kept up to date? This tracks each transaction by category and will inform your available deductions, as well as help to reveal the overall health of your organisation’s finances. It must be up to date by EOFY. 

Plan deductions and concessions

Many businesses reduce their taxes by claiming deductions and concessions. You might be surprised at how many aspects of your business qualify for a deduction — especially for small businesses. Things like office equipment, motor vehicle expenses, rental property costs, and travel expenses are commonly deducted from your assessable income. 

Ensuring your accounting software is up to date and accurate helps you ensure you won’t miss a deduction. Also, if you’re working with a professional, make sure they are working with the latest software and that their personal licence is up to date. 

Make a compliance checklist

EOFY requirements extend beyond lodging your tax returns. In fact, businesses across Australia have unique compliance needs depending on their size, revenue, and entity type. Do any of these compliance requirements apply to your business?

  • Public Sector entities must prepare financial end-of-year statements in accordance with the Public Governance, Performance and Accountability Act 2013. For more information about the standard parameters document and more, check out this list of compliance-related documents for commonwealth entities. 
  • Media holders in Australia with foreign stakeholders must meet very specific compliance reporting. 
  • Most business entities are required to lodge at least some government reports at EOFY. Section 292 of the Corporations Act 2001 (Corporations Act) outlines more specifically what is required of various entities. This includes public entities, all disclosing companies, and some small proprietary companies. 

Write off bad debts

Writing off bad debts (unpaid invoices, for instance) can be considered a tax deduction. Gather all uncollectible invoices and other extensions of credit and have them ready for reporting. This clears the slate of unrecoverable money owed to your business’ that are owed to your company moving into the new financial year. 

Create a plan for next year

If your EOFY was a pain this time around, you don’t have to simply do it all again next year. With the aid of professional bookkeeping services, you won’t feel the full burden of the necessary reports and tax lodgements. So make a plan now for how you will switch to real-time bookkeeping and reporting moving forward. 

Visory is here to help with catch-up record keeping, payroll and insights, and ongoing internal finance support. Be ready for the next EOFY by partnering with a trusted team of experts now. 

Cash vs. accrual accounting: What’s best for your business?

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There are two primary accounting methods: cash and accrual accounting. The accounting method you choose will affect many aspects of your business, including how you report on business income and expenses. 

Small organisations can choose between accrual and cash basis accounting. However, publicly traded companies must use accrual. 

Additionally, once your business revenue reaches $10 million, you’ll need to use accrual accounting and calculate your goods and services tax (GST). Small businesses with large inventories may also benefit from it.

Let’s talk more about cash vs. accrual accounting and how to get help if you don’t know how to make the change. 

Table of contents

  • What is accrual basis accounting?
  • How does accrual accounting work?
  • What is cash basis accounting?
  • How cash basis accounting works
  • What are the main differences between accrual and cash basis accounting?
  • Accrual accounting or cash: Which one is best for my business?

What is accrual accounting?

With accrual accounting, you track your income and expenses when they take place, regardless of when you pay bills or receive payments. For example, you’d record an invoice when you send it, even if your client hasn’t paid yet. 

Accrual accounting uses a double-entry system, meaning that you track twice, once for debits and another for credits. Double-entry can help prevent fraud and give you a more realistic view of your cash flow. 

Organisations of any size can use it. It provides a more complete financial picture, even when you don’t get paid right away for your products or services.

Here are the key pros and cons of the accrual accounting method:

Pros  Cons
It’s helpful when tracking a variety of accounts and large amounts of revenue and expenses.  It’s more complicated because you have to track actual cash on hand plus outstanding income and costs. 
Making financial projects and planning for the future is easier. Financial reports may need adjustments for as-yet-unpaid amounts when discussing current balances.
By logging cash flow with double entries, it’s simpler to catch mistakes or fraud. Bookkeeping and accounting may be more time-consuming.
It meets acceptable accounting practices and is the standard for public companies.  You could end up paying taxes on income that clients and customers haven’t paid you yet.

How does accrual accounting work? 

Accrual-based accounting is an accounting method that tracks all outstanding credits and debts as if they have already happened. 

If you complete a service, you report it as though you’ve already been paid in your books. Then you debit any invoice totals even if you have not cut a cheque yet. You can see all of your transactions—including long-term, future ones—in one place.

What is cash basis accounting?

Businesses that have an aggregate turnover of less than $10 million may use cash basis accounting to calculate goods and services tax (GST). 

Your internal finance team will only include transactions in tax reporting when money changes hands. In other words, when you make a sale, you don’t have to record revenue until you actually get paid. 

Regardless of annual GST, approved government schools, charitable institutions, and gift-deductible entities can use cash basis.

Here are some pros and cons to consider: 

Pros Cons
It works best for small companies that don’t have long payment cycles. Cash basis accounting can’t show you the debts that are outstanding, and accounts receivable payments that you haven’t settled. 
Cash accounting helps you track cash flow and determine what is in your bank accounts. You may not be prepared for incoming invoices from vendors or suppliers.
It’s simple because you only record transactions at the time they occur. Not all businesses can use cash accounting. 

How cash basis accounting works

With cash basis, you only track transactions when they happen. Each time your company makes a profit, you add to your total revenue. 

When you receive an invoice, you subtract. What it can’t show you is upcoming debts. These may include monthly accounts receivable cheques or recurring bills. 

What are the main differences between cash and accrual basis accounting?

Cash vs. accrual accounting differs primarily in the way you keep records and detail your cash flow. 

It’s easier to track with cash accounting because you only track funds when they come in and go out. However, it doesn’t show the full picture of your financial health. Your cash flow may look favourable, but you could have thousands in unpaid costs that are not readily visible. 

Accrual is more complex but also gives you a more accurate picture of your finances. You’re not tracking only actual funds, but also expected income and costs. If you have a floor installation business, for instance, you would report the project when it’s done — even if the final invoice is outstanding.

Cash or accrual accounting: Which is best for your business?

Either method works for small businesses, but large businesses should stick with accrual. Your internal finance team may need an online bookkeeping service to help with accrual accounting. 

When to use cash basis accounting When to use accrual accounting
You have a simple revenue stream with little time between invoices and payments You have complex revenue and cash flow
You value short-term cash flow over long-term projections You need to know your cash flow total including future projections
You generate less than $10 million a year You generate more than $10 million a year

Small businesses can choose between the two accounting methods. Larger companies must use accrual basis accounting in Australia by law. But even if you don’t meet the mandatory threshold, you might want to switch to accrual to get a better picture of your business finances.

Connect with Visory today, and our team of internal finance experts will get to know your business and which accounting method is right for you. You’ll partner with a team dedicated to your accounting needs and be able to access your books in real-time.

 

Let’s Play Catch-up: What is Catch-up Bookkeeping?

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Has it been a while since you cracked open your accounting software? Oops. When your business grows exponentially, or your bookkeeper hits the road, it doesn’t take long for your books to fall behind. And that can lead to catastrophic results. Catch-up bookkeeping helps you right the ship and make sure you can still keep the lights on. In short, it’s the process of getting your books current and catching any mistakes that you may have missed. 

Not only can catch-up bookkeeping give you a clearer picture of your revenue and overall financial health, but it gets your accounts receivable and accounts payable back on track. In addition, managed books make it easier to grow and help you stay compliant when tax time rolls around. Learn more about catch-up bookkeeping and when you might need it. It might be more often than you think.

What is catch-up bookkeeping?

Catch-up bookkeeping is the process of getting your financial records up to date. This necessary part of bookkeeping includes everything from analysing bank statements to reconciling your accounts receivable.

You don’t just require catch-up bookkeeping after a sustained period of neglected books. Rather, anytime you need to reconcile your accounts or migrate your data, you can use a catch-up bookkeeping service to confirm that you’re working with current information. If you have even a short period between a new bookkeeper, you’ll also want to do some catch-up bookkeeping to start your new staff member off on the right foot. 

When does your business need catch-up bookkeeping?

There are lots of times when you might need to catch up on your books. Some are for your own convenience, while others relate to serious government penalties. Under Australian and New Zealand laws, you have a responsibility to maintain accurate business records. You’re also required to track any transactions related to taxes and superannuation. Your organisation should be prepared to substantiate any of the information submitted on your tax return. 

Tax ready strategy aside, here are some of the most common times we recommend catch-up bookkeeping:   

  • When you need to add accounts. Are your records incomplete? If you’ve been using a new business credit card for a while and haven’t added it into your accounting software then you may be missing months of transactions. You can’t have accurate financial reporting if you don’t actually know what’s coming in and what’s going out. 
  • When you have unreconciled transactions. Whether it’s for a month or just a few days, your general ledger should contain all receipts, payments, and invoices listed by transaction. Missing transaction data could throw off your entire financial picture. Bringing the data up to date means your ledger is back in business. 
  • When you’re migrating to a new software system. Moving over to Xero or similar accounting software? You want your data labelled properly, and that means a little catch-up bookkeeping to make sure you’re entering the most recent and accurate figures. It’s much easier to get everything up to date in your existing software than fix it in your new software than to determine what went wrong in six months. 
  • When you need to prepare reports. If you’re seeking additional funding or want to show stakeholders the financial state of your company, playing catch-up on missing data is crucial. You can’t generate an accurate report without up-to-date figures. You could miss out on an investor if you’re using incomplete reports. 
  • When you aren’t being paid correctly. When your business is not being paid correctly, you may not be able to operate. If you suspect your customers owe you money, you need to catch up fast! Not only could your reporting and tax obligations be incorrect, but you could be leaving money on the table which could be put towards extra staff or growing your business. 

After my books are caught up, what is next?

Once you’re confident your books are caught up, you’re ready to sail, right? Not so fast. Bookkeeping is never a “set and forget” process. In fact, it never ends. Therefore, having a good bookkeeping service at your side is essential to ongoing success. 

At Visory, we partner your organisation with a team of bookkeepers who know your industry inside and out. They can complete catch-up bookkeeping on your struggling records and help to keep everything accurate moving forward.  

Catch-up bookkeeping is essential if you know if your books are unreconciled, payroll hasn’t been processed or your tax office is knocking. Catch-up bookkeeping also comes in handy when you’ve simply been short-staffed, and you know some receipts might have slipped through the cracks. Contact Visory to complete your catch-up bookkeeping, get your books ready for new software or to enable accurate reporting and insights. We’re always here for you.

Life After COVID: How a Bookkeeper Can Help Your Business Recover

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COVID-19 may not be entirely behind us, but the protections businesses enjoyed at the start of the pandemic are mostly gone or coming to an end. For example, JobKeeper is no longer in operation in Australia, and creditors are allowed to pressure companies who owe as little as $10,000. In New Zealand, some wage subsidy programmes are still available as of March 2021, but only if your city activates an Alert Level 3 for seven days.  In short, your organisation needs a plan for the future of your finances and business recovery. 

An experienced bookkeeper can help you get your paperwork in order which can help your accountant advise you on how to create a path toward profit. Instead of going it alone, consider how you can build a team of financial experts who can take you from the brink of insolvency to thriving once again. 

What roles does a finance team play in your business?

An outsourced finance team does a lot more than process your payroll and track your transactions. With the right people, an outsourced finance team can become a vital part of your internal team as well. 

Some of the most important tasks a fiance team for business include:

  • Financial reporting and forecasting. Accurate reporting can help your accountant forecast profits and losses. Forecasting will help you remain profitable after COVID and scale at a realistic rate and. 
  • Track down accounts receivable. Your outsourced financial team can chase invoices that went unpaid during the pandemic, which will help you balance your books on the other side of COVID.
  • Identify cash flow problems. Are you low on funds at the end of the month? Your outsourced financial experts can send you reporting and insights so you can create strategies for keeping more cash on hand.
  • Prepare financial statements for your accountant. Navigating PAYG instalments correctly reduces the risk of incurring government fines and penalties, especially as COVID era protections are lifted.  

How can an outsourced internal finance team help business recovery after COVID-19?

Businesses with an exit strategy in place are more likely to survive any crisis in one piece. In terms of COVID-19, this means being ready when payroll assistance and other forbearances are done for good. And even then, you may still need some help. Can you maintain a solid financial position moving forward without a trusted financial team? Unlikely.

In a post-COVID world, Visory’s financial experts can meet with your accountant and senior staff to help you establish a business recovery timeline—with contingencies included (what happens if there are new travel restrictions down the line?). Our bookkeeping and financial experts can help create a new budget for the next few years; your services/prices/expenses may have changed during COVID. With data and insights, you can determine when you’re ready to bring employees back full-time and evaluate the current salary structure for any necessary changes.  Having in-depth and accurate reporting and insights is essential for your accountant to make the right decisions. Visory can supply your business with an expert back office team that can give your business the reporting it needs to create strategies for recovery and help your team interpret the data. 

Finally, you’ll also need accurate financial records if you wish to ask for a bank loan. Your business recovery will require an expert financial team that is well versed in what businesses are being offered at each stage of post-COVID aid. Your accountant will maintain your general ledger and be on standby to request government aid if it becomes available. They can file applications, complete the necessary reports, and handle any appropriated funds. Visory can ensure that your accountant and back-office staff have the reporting and insights required to apply for a loan.

Why you should outsource your back office

You may not be able to in-house back office support on the heels of COVID. Many businesses have had to cut staff or roll back hours. When you outsource your bookkeeping and greater reporting needs, you can access a whole team of financial experts while saving money. 

An outside bookkeeping service like Visory can also give you an unbiased view of your business. You have been through an emotional few years, and an outsider can be objective about the necessary steps to recover fully. These decisions may include raising your prices, eliminating some services, or making other difficult changes that would be hard to admit are necessary on your own. 

Visory has a clear pricing plan that makes it simple to budget in the future. We know that many businesses in Australia and New Zealand are facing insolvency. Our team includes people with years of back-office support in various industries who can scale your services up and down as necessary. Plus, our financial experts and services are at the ready when you require an additional bookkeeping service, payroll, or other help. 

Having an expert team on your side can make all the difference in times of uncertainty. Surviving COVID as a small business means accurate books and a realistic plan for the future. Visory can help you with business recovery and more, including ongoing payroll and bookkeeping services. 

5 Ways Outsourcing Bookkeeping Can Help Grow Your Business

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Accountants are an essential part of any growing business. Not only can a good accountant or bookkeeper keep your balance sheets balanced, but they also help you scale up by taking a myriad of essential tasks off your plate. These tasks include: helping you create your budget and accounting policies, preparing financial statements for stakeholders and the government, keeping track of operating costs, maintaining accounting systems, and preparing tax returns. 

But how do you build a solid accounting team? Even for a medium to large business, the benefits of outsourcing your bookkeeping can’t be ignored. An outsourced finance team can handle everything from your itemised general ledger to your payroll. You get the help of an accounting pro without needing to hire a full-time staff member. Outsourcing often frees up money and time for innovation and product/services expansion, which helps you scale seamlessly. 

Here are five benefits of outsourcing your bookkeeping we think you should explore as your business grows. 

Outsourcing bookkeeping saves money that can be reinvested

As we explained in our guide to outsource bookkeeping, the average salary for a bookkeeper in Australia is almost $70,000 per year and in New Zealand around $68,000 (NZD) per year. Meanwhile, you might be able to get outsourced bookkeeping for as little as $1,000 per month. Imagine how much money you save if you have access to an entire outsourced team instead of hiring in-house bookkeeping experts. That’s a lot of money left for other essential tasks. 

With the money you save from outsourced accounting work, you can reinvest in your company’s other departments. This could mean increased product development, a bigger marketing budget, and other key expenses you need to grow your business. Not only can outsourcing save you money now, but it can set you up for future success. 

Outsourcing bookkeeping is scalable

The right outsourced bookkeeping team can scale with you. What does that mean? As your business gets bigger, your outsourced team can grow with you. A company like Visory can tweak your financial team as needed. That means adding new members to your team with a specific speciality, creating redundancies when necessary, and allowing you to grow your business without pausing to hire a new full-time employee. 

In addition to adding new virtual team members to your business as you grow, the benefits of outsourcing your bookkeeping include assigning additional functions and responsibilities. Some of the things an outsourced team can do for you as you grow larger include:

  • Scaling up back office processes such as payroll and accounts payable that drive your business forward
  • Take on additional financial reports, such as quarterly reports or trial balance briefs
  • Analysing your company’s financial strengths and weaknesses so you can make informed decisions that improve your performance
  • Make accurate forecasts about the future of your business

Outsourced bookkeeping can keep you compliant

Outsourced finance professionals can also help keep you compliant. You don’t have to worry about chaos in your internal financing when your internal financial experts are on the case. Whether you’re reporting to the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), New Zealand Companies Office, or New Zealand Inland Revenue — you won’t be caught breaking the rules with an expert who promotes good practices. Your remote bookkeeper can also stay on top of your Business Activity Statement (BAS) schedule. Staying up to date on day-to-day data entry and regular book balancing is a lot easier with a robust finance team. 

Outsourced bookkeeping and accounting can help you obtain additional funding

Want to obtain additional funding? You better hope your books are in order! Or, hire an expert team of financial professionals to double-check every figure. As you scale up, potential stakeholders will look for specific financial records. These may include:

  • Historical data about your company’s growth, including income statements and balance sheets
  • Projected financial figures that include projected cash flow and capital expenditure budgets

Outsourcing can relieve the burden on your management team

When you outsource your financial reporting, you ease the entire management team’s overall burden. No one will have to drop other work to process payroll or vet potential tax accountants. The company’s leadership can remain focused on your business’s growth and innovation. Outsourcing bookkeeping allows you to retain accurate internal financial data, so informed business decisions can still be made, but management is free from the mundane day-to-day reporting that may slow down growth in the long run.

The benefits of outsourcing your bookkeeping include freeing up time and money, easing the burden on executives, and scaling up faster. If you need a team on your side, consider Visory. We can pair you with a bookkeeping team that is specialised in your field and ready to get to work today. 

Outsource Bookkeeping: Your Guide For Finding the Best Bookkeeping Service

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Man in blue Oxford shirt inputs numbers into a calculator for his outsource accounting client.

As your business grows, the numbers you crunch keep getting bigger. Soon you’re burning the midnight oil just to balance the books. You could use some help. When a business goes from small to medium, it often makes sense to start outsourcing your bookkeeping and accounting. 

An outsource bookkeeping service frees up lots of time and energy and allows you to put off hiring a full-time employee. Plus, there’s no need to sort out a new accounting software that won’t always catch all of your mistakes. 

The average salary for a bookkeeper in Australia is almost $70,000 per year, while you may be able to get outsourced bookkeeping for as little as $2,500 per month. If you only need someone part-time, buying services per hour or per project is often the financially savvy choice. Read on to learn more. 

Benefits of outsourcing your bookkeeping

An outsourced bookkeeper can become a part of your team, even though they’re not in-house. And in some cases you have access to a whole team of supportive experts instead of just one employee. The key benefits of outsourcing your bookkeeping as a medium-sized business include:

  • Lowering your overhead — You get the benefit of balance books without paying for office equipment or salary for an employee. 
  • Gaining access to your books at any time — You don’t want to wake your employee at 11pm to access a report, but a virtual bookkeeping service gives you 24/7 visibility into your report. 
  • Having an expert on your side — Companies like Visory can pair you with an expert in your industry, so there is no need to hunt one down on your own. 

What task can a virtual bookkeeper do for your business?

An experienced virtual bookkeeper will show up on Day 1 ready to get to work. In fact, one of the main benefits of hiring an outsourced bookkeeping service is that you don’t need to train a bookkeeper or find someone who understands confidentiality.  

Your virtual bookkeeper will be vetted for their professionalism and expertise. An outsourced bookkeeper can complete the following services (and often more!) based on your needs:

  • Get your books up to date if you’ve been without accounting services in the past and need a clean up. 
  • Maintain balance sheets, payroll, and other books going forward. 
  • Tracking bills and handling accounts payable and accounts receivable. 
  • Managing your payroll process and tracking expenses. 
  • Helping you prepare your taxes. 
  • Preparing reports for potential investors and analysing the health of your company’s finances. 
  • Keeping track of your cash flow. 

How does outsource bookkeeping work?

You might like the idea of more affordable bookkeeping, but where do you start? With a company like Visory, it couldn’t be more seamless. The onboarding process is fast and we get right to work straightening out your books. In addition to bookkeeping services, you’ll have access to an entire financial team if you want your financial reports on the weekend or require additional services as your business grows. Plus, with a whole team at your disposal, you don’t have to fear losing your bookkeeper and scrambling to balance the books until you find a replacement. 

Outsource bookkeeping from Visory pairs you with a specialist who is trained for your industry segment and allows you to scale up as your needs grow. You don’t have to fire and hire a new bookkeeper as you add on more payroll needs or decide to do monthly reporting instead of quarterly. A good virtual bookkeeper is focused on outcomes and strategy — not just doing the bare minimum. They can even offer insights about how to drive your business. 

How much does outsource bookkeeping cost?

As we mentioned above, an outsourced accounting service can offer rates competitive to a full-time staffer — with more services than you’d get from one employee. If you have unique needs, you can even get pricing based on a specific proposal or project. 

At the same time, Visory offers a fixed rate unless you add on additional services. So you can count on a consistent cost as opposed to experiencing fluctuating invoices each month from a contractor or potential overtime. No surprises here. 

Is outsource bookkeeping right for my business?

If you’re worried about your books, don’t have time to balance them yourself, and want to avoid hiring a full-time employee—outsource booking might be the solution you seek. It can also work if you have an accounting team but know you need more help to scale. 

Sign up with Visory today to learn more about our custom bookkeeping plans and pricing for businesses of all sizes. 

Seeing Double: Why You Need Double-Entry Bookkeeping

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Your business is growing, which is good for your bottom line. It may not be good for your limited accounting staff, however. Especially if they’re not keeping accurate, double-entry books. Thankfully there is a lot of help out there for medium-to-large businesses that need assistance scaling up while keeping their books straight. 

Online bookkeepers can save the day when it comes to the fundamentals of business accounting, such as double-entry bookkeeping. This style of accounting is necessary for any growing company with both accounts payable and accounts receivable. Basically: every transaction is recorded twice. We’ll explain the principles of double-entry bookkeeping, how it differs from single-entry accounting, and why knowing more about double-entry matters for your business. 

What is double-entry bookkeeping?

Double-entry bookkeeping is a system where you are recording transactions in terms of debits and credits. Need a simple double-entry bookkeeping system example? Glad you asked. Imagine a spreadsheet with two columns, one for expenses and one for credits. Each transaction is recorded twice, once in the expenses and once in the credits, hence the name “double-entry.” If the columns don’t balance, you can investigate why the error exists.

Let’s say you have a corporate credit card with a balance of $5,000 that you want to pay off. Your company’s cash account would be reduced by $5,000; this is a debit/expense. At the same time, you would subtract $5,000 from the current debt held by the company, which is considered a credit. The transaction is recorded once in subtraction and once in addition, balancing the line items.

When do accountants use double-entry bookkeeping? Medium to large businesses, and even some small businesses, require this method to keep an accurate balance sheet. This style of bookkeeping also keeps your general ledger clean — this is a book that categorizes your financial transactions by type. You can also use double-entry when you create a trial balance, which is a simple spreadsheet with credit/debit columns that covers a specific time period. This document is meant to detect accounting errors, and double-entry helps you find discrepancies.  

Double-entry operates from the fundamental accounting equation: Assets = Liabilities + Equity. Once you add what you own against what you owe, you can understand whether you are in a surplus or deficit.

Man reviews a balance sheet on his laptop

Untitled by Photo by Austin Distel on Unsplash

How is double-entry bookkeeping different than single-entry bookkeeping?

Single-entry bookkeeping only works for very small, very simple businesses. If you are bringing in cash with few expenses, such as with a sole proprietorship, this type of accounting may cover you. 

Single-entry methods are like keeping a chequing account. You only keep track of deductions or credits, creating a single entry for each transaction. Even if you had a credit/debit double-column spreadsheet, there would not be an entry in both columns for each transaction — with double-entry, there is. 

Should I use double-entry bookkeeping?

There are many advantages of a double-entry bookkeeping system. Here are some of the reasons we recommend switching to this type of accounting as a medium to large company:

  • A more complete view of finances. Creating two entries for each transaction makes it easier to see where exactly the money that is going out as a payable ended up. A simple single-entry cash system isn’t complex enough for most businesses. 
  • Finding errors is faster. Doubling down on entries also makes faster work of locating where a credit came in that was not properly debited, and vice versa. You will thank yourself later if you detect missing money.
  • There is total transparency. By expecting a double-entry system from your accounting staff or partners, you keep everyone clear on where the money is coming and going. 

Conclusion

Bookkeeping can be a complicated business, and even double-entry bookkeeping isn’t foolproof. While double-entry accounting adds transparency and increased accuracy to the process — you may still need some help by way of a bookkeeping service. 

Visory has a team of financial experts that can lend their expertise whenever you need help balancing the books or preparing a trial balance brief. We’re better than an in-house accountant for growing businesses because you get access to a whole team and you can check your records around the clock. If it’s time to upgrade from single-entry to double-entry bookkeeping techniques, it’s definitely time to give us a call or create an account online today.

Understanding a Balance Sheet

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Think you have a grasp on the health of your business? If your balance sheet is a mess, you might be lying to yourself. A balance sheet represents your company’s assets, liabilities, and stakeholder equity (the money that’s been invested) at a given point. In other words, it tells you a lot more than the pile of Post-Its and invoices you keep on the corner of your desk. 

Balance sheets are often prepared quarterly, but you can generate one any time you need to see how your company is performing. Of course, understanding a balance sheet is as important as creating one. If the columns look like Greek, you can’t make educated investments or have smart spending habits. A company like Visory can help you prepare and understand an accurate balance sheet on a regular basis to track the growth and financial challenges of your organization. What is a balance sheet?

Most balance sheets use the same standard equation. This formula balances what the company owns (its assets) against what it owes (its liabilities) plus what stakeholders have invested. 

Assets = Liabilities + Shareholders’ Equity 

However, as Harvard points out, there are a few other (less common) formulas that can help you take the pulse on your business’ health as well.  These equations are aimed at figuring out what the stakeholder’s investments are worth and what the current liabilities are, assuming no overhead. 

Owners’ Equity = Assets – Liabilities 

Liabilities = Assets – Owners’ Equity

A balance sheet will have a column for assets and a column for liabilities and investments that should — you guessed it — balance each other out. If you take out a loan for $10,000, your assets will increase by that amount because you now have $10,000 available to spend. However, your debts will also increase by $10,000 because you have to pay it back. Thus, the two columns are balanced. However, understanding a balance sheet also requires a more detailed understanding of what constitutes an asset and what is considered a liability. More on that right ahead. 

Man reviews a balance sheet on his laptop

Untitled by Photo by Austin Distel on Unsplash

How a balance sheet is structured

One of the things a balance sheet determines is your company’s debt ratio. Lenders and potential investors may specifically seek out this data to determine if your company is in the black or the red. They are sure to comb over your financial documents, which makes understanding your company’s balance sheet and profit and loss statement crucial. . 

Now, what is the proper way to structure a balance sheet? Understanding a balance sheet also means knowing how to organize it. If you leave off an essential line item, the entire document could become inaccurate. 

First, let’s discuss the assets. These include current assets and non-current (also called long-term) assets. These items will typically be written as individual line items on the left side of your balance sheet. 

  • Current assets
    • Cash and cash equivalents (including short-term CDs)
    • Accounts receivable
    • Inventory
    • Prepaid expenses
  • Non-current assets
    • Property and equipment
    • Intangible assets (patents, licenses, proprietary technology)
    • Long-term securities investments

On the right side of your balance sheet, you will write down your liabilities and equity stakes. These line items include anything your company owes to lenders,

  • Current liabilities
    • Accounts payable
    • Wages payable
    • Current bank debt
    • Long-term debt
    • Deferred revenue
  • Shareholder equity
    • Share capital
    • Retained earnings
    • Common stock
    • Preferred stock

Why are balance sheets important?

If you need a course on understanding balance sheets for beginners, you’re not alone. Even medium to enterprise companies who have grown swiftly may still need aid ironing out the best way to balance the books. Trust us, it’s worth the effort. A balance sheet makes a difference in day-to-day business (can you afford to process payroll on time?) and in your long-term growth (will you be approved for a new business loan?). 

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A real professional that understands the specifics of book balancing and the ins and outs of accounting can make a huge difference in your business’s financial health. Accurate reports not only allow you to see red flags as they arise but prepare you to be ready to go when an investor shows interest. Someone who is already experienced in understanding balance sheets and income statement documents is a major game-changer. 

Need some help understanding a balance sheet? Get started with Visory today. Signing up is straightforward and gives you access to the experts you need to keep you out of the red.