The challenges most business owners encounter include high receivables, internal theft and fraud by employees, and excessive levies by government can be significantly mitigated if there are proper accounting systems in place.
This article highlights the different forms of accounting systems and why you need it as a business owner.
Definition Of Proper Accounting System:
Proper accounting system is a system of accounting in business that provides proven simple methods to help business owners to learn, understand, and properly record their business transactions.
- Different Forms of Proper Accounting System.
They are as follows:
1. Paper Recording System.
2. Offline Recording System.
3. Online Recording System.
Paper Recording System
This is a system of accounting in business that involves keeping the records of business transactions using different note books such as cash book, debtors book, creditors book, assets book, petty cash book, general ledger etc. These books are prepared by the accountant setting the accounting system in line with the business. This means that the books kept by a tailor will be different from the books kept by someone in agricultural business. And there are similarities in their recording systems as well. The limitation in proper recording system is that it consumes time especially when you have large volume of transactions.
Offline Recording System
Offline recording system involves using an accounting software downloaded into your laptop or desktop. This is free but you only access your accounting records once the laptop or desktop is with you. Some of the accounting software are Accounteer, Manager, Sage, QuickBooks, Zoho Books etc. Also, offline recording system could as well be done using Spreadsheet, example Microsoft Excel. The limitation of offline recording system is that you can only access your records in the laptop and you cannot update your records remotely.
Online Recording System
This is the best recording system. Once it is installed, accessibility of your accounting records is anywhere you are as long as there is internet connection. It is not free. There is subscription fee either monthly or yearly with unlimited storage space for your data. In fact, I will recommend ‘Accounteer’ a Nigerian accounting software. It is easy to use and affordable.
Importance of Proper Accounting System
In the business world, proper accounting system is an aspect that every business owner, regardless of the nature of business should have some knowledge of. Its relevance has been promoted in recent years due to the boom in entrepreneurship.
- Proof of Receipts and Payments: Proper accounting system helps business owners to know when debt is due for collection or payment. This forces owners not to rely on their memory alone. That means they only pay or collect what is due, no more or less.
- Financial Position: Many business owners will tell you they are doing well in business because of the sales made, cash at hand etc. However, the financial position of every business is determined after a period of time having deducted all expenses made to arrive at a profit.
- The Ease in Filing Taxes: Proper accounting system will help you in filing your taxes. You can pay your taxes and all other tax transactions without stress as at when due.
- Connection to the Outside World: Proper accounting system gives you opportunity to communicate to stakeholders, employees, potential investors etc with trust because the information you give or show them can be verified.
- Helps You Control Your Business: You cannot be in control of a business if you do not know what is going on. With a bad accounting system or no accounting system, a company is said to be flying blind.
The New York Times rates poor accounting as the 4th reason, in a scale of 10, why small business fail.
- Solution to Efficiency in Business Transactions: Society and business practices have changed, the boom in entrepreneurship and the emergence of new sectors such as online services led to changes in how some business transactions are being processed. Therefore, Proper accounting system gives you a platform for efficiency and effectiveness in processing your business transactions.
- Influence in Economic Policies: Proper accounting system gives information that has great influence in Economic Policies an example of this is illustrated by the National Coal Board (NCB) case on 3rd June, 1985 in Great Britain were the measurement of accounting profit was used to justify the closure of coal pits, causing an impact on electricity prices, jobs and taxes.
According to Federal Inland Revenue Service (FIRS), failure to keep proper records and accounts, is an offence punishable by law.
Anybody can learn proper accounting system, regardless of educational background. It is one of the basic needs of every business owner, from the garri seller to the oil servicing mogul.
In general, it is written “Be diligent to know the condition of your flocks…”. This is not a piece of advice but an instruction that proper accounting system is a “must learn” because your flock is your business.
Finally, modern society would be helpless and achieve less without proper accounting system. No business can survive for a long time without it. Just knowing where your business stands financially is of great importance.