ACCOUNTING SERVICES FOR SMALL BUSINESSES

What is accounting and why does it matter for small businesses? Where bookkeeping ends, accounting begins. Having said this, you can realise right away that there is a difference between bookkeeping and accounting.

Bookkeeping to trial balance
Traditional bookkeeping will end in a trial balance after all the financial transactions have been recorded from their original document sources into the general ledger, for example, bank transactions, sales, purchases, inventory and so on.

A trial balance is a bookkeeping report that lists the balances of all the general ledger accounts of a business that are categorised into various credit and debit accounts, such as income accounts for sales and interest received, expense accounts for example bank charges, rent, telephone as well as assets, for instance computer equipment, furniture and fittings and liabilities such as loans to the business and bank overdraft.

Accounting to annual financial statements or management accounts
Accounting begins from the bookkeeper’s trial balance where the accountant will make adjustments to the trial balance (these adjustments are referred to as “journals”) in their compilation and presentation of the business’s “annual financial statements” (that are also used to prepare the business’s income tax returns) or in the presentation of regular financial reports to the business owner, commonly referred to as “management accounts”.

When preparing the adjustments or journals to the financial information presented by the bookkeeper, the accountant needs to consider many aspects of the financial information itself as it relates to accuracy, completeness, company and tax law and international financial reporting standards before he or she can begin to draft the annual financial statements of the business for presentation to the business owners and before the accountant will sign off their report.

Accounting to save money for small business and to mitigate compliance risks
There are dozens of compliance stumbling blocks that an accountant needs to overcome and benefits for the business that needs to be considered when getting ready to draft annual financial statements and even management accounts.

Accountants will use their extensive knowledge of income tax laws to optimise tax savings for both the business and the business owner personally. For example, they will calculate and maximise depreciation and any other special allowances on the assets owned by the business which is a tax-deductible expense that will be adjusted on the trial balance or they will consider paying interest on loan accounts to the business owners if there is a tax benefit in doing so. They will consider tax benefits as it relates to the owners of the business, for example, how best to deal with profits of the business to maximise tax savings.

On the flip side, compliance risk can sink the most profitable businesses. An accountant will identify any compliance risk the business might unknowingly be in that could create financial hardship immediately, or in the near future, issues that are referred to as “hidden liabilities” for the business. Any hidden liability that may come to the attention of the accountant is discussed with the business owner and recommendations are then made on how to resolve the issue. By way of example, if the turnover of the business as per the financial records is lower than the turnover stated on the VAT201 returns for the year (the Value Added Tax return), SARS will inevitably flag a full-blown audit. The consequences of such an audit are an underpayment of output VAT, penalties and interest … and of course, the cost to the business to hire an accountant for an extensive period during the audit conducted by SARS so as to minimise the possibility of the business owner incriminating him or herself in front of SARS officials. Should the business owner wish to object to an additional assessment of VAT as a result of the audit, it would entail greater costs and could end up in court.