7 Steps of The Accounting Process for Small Business

Accounting is a key element in a business’s financial backbone activities. The accounting process plays a vital role in managing financial transaction records. It also provides business owners and stakeholders reports about their income and expenditures. 

Big companies whose volume of transactions is high take accounting activities as one of their priorities. Big companies with a big accounting team have many accountants of different levels. The force deals with a wide range of finance-related tasks to ensure monetary affairs are handled correctly.

Though small companies don’t have as many transactions as big firms, they still acknowledge the importance of accounting. However, there are fewer accountants to process accounting activities in small businesses. To help accountants in small businesses manage the accounting process in a less stressful way, we’ve compiled a 7-step accounting process guideline.

Why is accounting important to business?

Before we learn about the accounting process, let’s have a quick tour of why accounting is important to a business in so many ways.

Though accounting is a process of dealing with financial-related tasks, it is not just about monetary management. Accounting brings a lot to the table for business top tiers. Here, we’ll look at 5 benefits that any business owner can take advantage of with accounting.

Keeps your business organized

Accounting and business go hand in hand, like peanut butter and jelly. You can’t have one without the other. But why, you ask? Accounting lets you know how much money your business has earned and paid out. 

Though small, your business still has quite a long list of customers and vendors. Which customers haven’t paid you? What debts haven’t you paid yet? You will want to collect payments from customers on scheduled dates and then pay out the debts to your vendors. 

Yet, in reality, things aren’t as perfect as you wish. Sometimes, a customer will pay an invoice late, and their excuse sounds reasonable enough so that you can’t say “no.” However, in the meantime, you still need to process payments to your vendors as you want to maintain good relationships with them. 

Accounting gives you a chance to revisit all your financial records. Based on that, you’ll know which customers you need to collect overdue payments from.

Helps evaluate a business’ performance

Financial records provide detailed statements that reflect a business’s health. With key information such as expenses, gross margin, and debt displayed on financial records, you know how the business is doing, whether it’s doing good or having a hard time. A good accounting system makes it easier to look back in the past and make comparisons. 

Improves an organization’s decision-making

Business is never a game of luck, and every decision is made with great caution. Therefore, it’s almost impossible to make the right decisions without accurate information. 

A good accounting system provides insights into a business’s performance and its trajectory. These insights help business owners, investors, and stakeholders make the right decisions for its future. Based on performance’s insight, you will soon execute new strategies to align with the condition of the business.

Companies also use analysis of financial reports to make decisions about hiring employees, making purchases, gifting charitable donations, and more. You may look for a strategic marketer to handle bigger projects, and you’re not sure if your budget can make a good offer for new talents. Or should you upgrade the software for office workers to improve their productivity? Well, all those questions can be answered if you look at the financial reports summarized by the accounting process.

Opens doors for getting investments or loans

Investors and lenders need to learn about your business before they decide to join hands with you. As a good negotiator, you make investors impressed by pointing out your business mission and vision. You also prove to them that your business has high financial potential. 

Well, that’s half the way. Investors and lenders now have positive views about your business, and they will ask for evidence of your performance. You will have to show them your business’s financial statements and records. These statements and records will paint a clearer picture for investors and lenders. Besides, they prove that what you’ve represented is trustworthy. Without evidence of your business performance, you could hardly get a loan approved.

Allows you to stay within the law

Every business’s legal obligation is to pay tax, and any business owner wants the tax procedures to go as seamlessly as possible. Accountants have to handle the organization’s financial matters according to various laws and regulations. 

Good accounting systems and processes will make everything much easier. Besides, they also ensure your business violates no obligations when it comes to money affairs. 

7-Step Accounting Process

Business financial data, including sale transactions, payments to employees and suppliers, interest and tax payments, are all important. Therefore, they must be well-documented in the company accounting books. 

Accountants use accounting principles to record and report business financial data. This accounting process contains 7 steps, with each being a base to build off the next step. Let’s have a look at the 7 steps of the accounting process. 

1. Identify transactions

The first step of the cycle begins with the job of identifying transactions. There are numerous transactions made by companies with customers, suppliers, and even their employees. Every single piece of documents needs to be properly recorded on the company’s books so that accountants can collect and analyze them in the accounting process. 

However, paper records are susceptible to risk. Risks such as incidents of fire, poor environmental conditions can ruin your piles of files. If your business office catches on fire, your paper records could go up in smoke. Floods, earthquakes, and other natural disasters can also result in the loss of important business documents. If records are stored in moisture-prone areas, they’re subject to mold. As a result, businesses will suffer from a huge loss because of missing documents or defaced bills. 

See also: Why small businesses need to transform paper receipts to digital data

An optimal solution is a piece of software that digitizes and stores all your important transactions on the cloud. Digitized files are much safer than paper files. Besides, they’re highly accessible. Accountants can search, filter, and collect a group of documents with just a few clicks.

Shoeboxed is a cloud-based software that helps businesses turn their massive paper receipts into digital data. You can get your receipts scanned, stored, and organized by your mobile app. It’s simple to install and easy to use. 

2. Record transactions in a journal

The second step in the accounting process is to record every transaction in a journal. A journal, or a Book of Original Entry, keeps a historical account of all recordable transactions with which the company has engaged. 

Different accounting methods will dictate different official recorded times for each transaction. Cash accounting method records a transaction only when cash is either received or paid. On the other hand, under accrual method, transactions are recorded when they are incurred rather than awaiting payment. This means a purchase or expense is recorded as a transaction even though the funds are not received, or bills are not paid immediately. 

3. Post to the ledgers

After journal entries are made, the next step in the accounting cycle is to post the Journal entries into the ledger. A ledger, also known as Books of Final Entry, consists of all accounts connected with the company. 

The ledger breaks down all accounting activities by account and illustrates them in debit and credit columns. The balance of each account is represented at the bottom after all debit and credit transactions have been calculated. Accountants use ledgers to monitor financial positions and statuses by account. 

4. Prepare unadjusted trial balance

The 4th step in the accounting process is to prepare the unadjusted trial balance. The unadjusted trial balance is the listing of all the business accounts that should be calculated at the end of a reporting period. This must be processed before any adjusting entries are made to the balances to create financial statements.

5. Adjust trial balance

The adjusted trial balance is prepared to show updated balances after adjusting entries have been made. This is the 5th step in the accounting process. This trial balance is an important step because it helps identify any errors throughout the previous steps in the cycle. 

The adjusted trial balance ensures that either errors made by computers or transactions unintentionally skipped by accountants have been corrected and updated. For example, when accrual accounting is followed, transactions may have been incurred but are not booked in the Journal. They won’t be recorded until the end of the year, such as entries of expenses. Therefore, sometimes errors can happen if accountants miss a single record.

6. Create financial statements

Following the adjusted trial balance is the step of creating a financial statement. Financial statements such as income statements, balance sheets, cash flow statements, and sometimes statements of changes in equity will be generated.

Financial statements summarize all transactions and accounting activities during the accounting process, thus helping business owners know the actual financial position and the profitability position. 

7.  Close the books

Finally, a company ends the accounting process by closing its books on the specified closing date. A report for analysis of performance will be made to help companies improve their performance. This will have a great impact on the company’s future decisions. After closing, an accounting cycle restarts with a new reporting period. 

Final thought

The accounting process is important for every business’s sake. Because without it, you will not know your business’s actual position and performance. 

However, accounting is a labor-intensive process that involves many tedious tasks. Many accountants say that the accounting workload is overwhelming, and it stresses them out. To reduce the workload of accountants in the accounting process, many business owners have reached out for accounting software as a solution. Computerized accounting programs now do many different things to make business operations and financial reporting more efficient.

Shoeboxed is an online app that lets business scan paper receipts and store them on the cloud. With the help of software, accountants no longer have to identify transactions manually. Start your trial today with Shoeboxed!

5 Best Receipt Scanner and Organizer Apps for Small Businesses in 2021

If you’re a freelancer, an independent contractor, or a small business owner, you’ll know that organizing receipts can cause endless headaches. 

Turning your receipts from paper to a digital format with a receipt scanner makes your expense tracking much simpler. This is the best way to eliminate piles of paper and organize your spending habits. Using a receipt scanner helps you work faster, improving efficiency and giving you a competitive advantage.

A receipt scanner used to be a hardware device to scan a specific type of document, but now, in today’s world of smartphones and apps, actual scanners are a thing of the past. Your smartphone’s camera and a receipt tracking app are all you need to get your receipts scanned and organized. This article lists the best five receipts scanner and organizer apps and their specific features for particular purposes to help you choose the right one. 

How does a receipt scanner app work?

A receipt scanner and organizer app is a mobile app that scans specific forms of documents. This tool is essential for people or businesses to keep digital copies of their receipts for management or tax purposes. It is also helpful for professionals who need to track and prepare expense reports. 

Most receipt scanning apps work the same way. All you need to do is download the app, take pictures of your receipts, and fill in some additional information. The app creates a digital version of your receipts, which you can retrieve from a digital filing system anytime. 

These digital receipts can be kept for years without the danger of losing or damaging. You can always search for the receipt you need by entering the keyword, date, or time. Beyond such search features, there are numerous benefits to using scanner apps.

Advantages of scanner and organizer apps
A receipt scanner and organizer app offers the following advantages:

  • Security: Keeping digital copies of your receipts is safer than keeping the physical version. First, it lowers the risk of loss or damage by flooding or fire outbreak. Second, since documents are stored in a secured program and protected by a password, they are less accessible to hackers. And lastly, you can always create backup copies of your scanned receipts. 
  • Efficiency: A receipt scanner and organizer helps you track, manage, and organize your financial documents faster and makes them easy to find. It allows you to work quicker and more efficiently. 
  • Sustainability: Going paperless helps you eliminate unnecessary waste, such as paper, printer, ink, and so on. 
  • Flexibility: Some receipt scanner and organizer apps can handle various sizes of documents and send them to USB memory storage, email, fax, or file location. 

Discover: Why Small Businesses Need To Transform Paper Receipts To Digital Data

The top 5 receipt scanner and organizer apps for small businesses in 2021

1. Expensify

Price: From $4.99/month

Platform: iOS and Android

Expensify works best for small businesses with a limited budget as it comes with various pricing plans to meet your needs. Individuals can use the free version to scan up to 25 receipt scans per month without paying the monthly subscription fee. And if you wish to upgrade the plan, Expensify’s pricing ranges from just $4.99 to $9 per month. 

If you’re looking for a receipt scanning software that can also organize your receipts, then Expensify is a great choice. After you capture your receipt, Expensify will automatically upload it into the system. However, you’ll need to manually input some data so that the software can store your receipts correctly. 

A standout feature of Expensify is its SmartScan OCR, (Optical Character Recognition technology). The feature saves you time entering receipts by scanning them, verifying that the expense is compliant with your employer’s rules before organizing it into an expense report – all automatically.

Expensify integrates with dozens of accounting software such as Quickbooks, Xero, and NetSuite. By this, you can easily track and view expense reports from the software of your choice. All you have to do is upload and label receipts, and Expensify will take care of the rest!

2. Shoeboxed

Price: From $18/month

Platform: iOS and Android

With the pricing plans starting from $18 per month, the Shoeboxed receipt organizer is exclusively designed for freelancers and small businesses who are willing to spend a little more to be “audit-ready.” This app doubles as a receipt scanner and organizer, making it one of the most versatile choices on this list. Shoeboxed allows you to scan and upload your receipts via email or the mobile app. Otherwise, you can mail your receipts to a Shoeboxed facility to have them scanned and organized. 

Just like Expensify, Shoeboxed integrates with numerous accounting software, from Quickbooks, Xero, Wave Accounting, FreshBooks, and so much more. Shoeboxed’s OCR engine and human data verification features ensure that the digital versions of your receipts are legibly scanned, clearly categorized, and easy to locate. These receipts are in precise format, which is accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. What’s more, Shoeboxed offers the mileage tracking and business card storing feature, making it a one-touch app to access all your important information. 

See more: How To Scan A Receipts Digitally With The Shoeboxed App: A Step-By-Step Guide.

3. Zoho Expense

Price: From $5/month

Platform: iOS and Android

Zoho Expense is a digital receipt organizer specializing in serving freelancers who like to keep things mobile and user-friendly. This app allows users to scan receipts and organize each one in their own order. You can also mail your digital receipts to the Zoho Expense software and sync the data with various business programs. 

Just like the above, Zoho Expense comes with an OCR engine and integrates with various accounting software such as QuickBooks, Xero, and Sage Accounting. But one of the best features that Zoho offers is its storage capacity. While most receipt software products put a limit on the number of documents you can upload per month, Zoho Expense offers users a set amount of storage space (from 5 GB and above). Since most receipt images take up relatively little storage, you can store a lot of receipts with Zoho Expense. 

The Base plan is free, the Premium plan is $5 per month, and the Enterprise plan is just $8 per month. Overall, Zoho Expense is the best choice if you want to organize your receipts on a budget and don’t mind doing some of the work manually.

4. Smart Receipts

Price: From $9.99/year

Platform: iOS and Android

Smart Receipt is a receipt-focused app that works best for those who want to keep the process of tracking expenses and generating expense reports exceptionally simple. This app has an OCR engine that performs text recognition on your scans, helping you search and organize the receipts. It can even create a spreadsheet with more than 20 different types of data recognized with corresponding fields. 

This app is also simple to use. Start by creating a report with all the fields you want to include. Then take a snapshot of your receipt and fill in the field. Then you can generate your report in PDF, CSV, or zip file. You can always generate more than one report from a receipt. 

The free version of Smart Receipts already has necessary features for small businesses (such as customizing PDF, CSV, or ZIP format for your reports, mileage tracking, and OCR functionality). However, you can always purchase a yearly subscription for $9.99 per year to enjoy additional benefits such as ad-free, automatic backups to Google Drive, automatic currency conversion, the ability to edit or customize the PDF report footer, and so on. 

5. Fitfin 

Price: Free

Platform: iOS and Android

What most people imagine when they think of receipt scanning apps is tracking business and travel expenses. But the truth is, one of the most common purposes for receipt tracking is budget planning. Fitfin is perfectly designed for this purpose. 

This receipt scanner and organizer app is a great way to track expenses and stick to a budget. It allows you to set your budget for various categories and save your receipts to corresponding folders. You can break your receipts down into items so that you can see where every dollar goes in your budget. The great thing about using Fitfin is that you can predict your spending, which you can track against your budget for real-time, proactive budgeting.

In short, Fitfin is best for small businesses that need to manage their budget precisely by giving you an overview of your finances and predicting how much you will spend. 

The bottom line

Choosing the best receipt scanner and organizer app depends on the needs of your company. For example, if you don’t go on business trips frequently, you don’t necessarily need one with a mileage feature. If you’re preparing for an IRS audit, you may want a feature-filled app – like Shoeboxed – that ensures your receipts are audit-ready. Compare the features and pricing of each app and try several before making a decision.