Accounting | Singapore

24 May, 2024

Bookkeeping 101: Essential Tips for Small Business Owners in Singapore

Exploration of the significance of bookkeeping for all businesses, along with an overview of the essential fundamentals that small business owners should be acquainted with.

The Importance of Bookkeeping for Small Businesses

Many tasks must be per­formed by a small business. In daily work­ and product sale­, the owner may be tempted to overlook bookkeepin­g. But bookkeeping serves as the foundatio­n.

Picture bookkeeping as a historical map for accounting. It boils down to keeping track of the money. This aids in decision-making. You can­ see what has become­ of your growing and spending mont­hs. On the other hand, it will also help you­ not to fall into the hands of the ta­x authority. Never the &e­acute;les­s thing than running a bus­iness with­out bookkeeping. It's cha­llenging to follow how well you per­form, pinpoint financial issues, or make expenditure de­cisions.

What is Bookkeeping?

Bookkeeping, in a nutshell, refers to the meticulous recording of your company's financial transactions. Recording your income, expenses, and the movement of funds from one account to another should be practiced. The fundamental reason behind this practice is to create systems to facilitate fast navigation. A company balance is partially lost among hundreds of related transactions when these are logged consistently.

Bookkeeping vs. Accounting

Several languages equate bookkeeping with accounting, yet the two are different. Bookkeeping simply means keeping a record of daily transactions, which is the input of financial management. It is also portrayed as slicing cucumbers and tomatoes to prepare a vegetable salad.

Accountancy, however, is next in line when it comes to transforming the listed transactional facts into other, more complicated ones. To put it another way, accountants examine data, organize financial reports, and detect trends to give insights into your business. They are like chemists creating chemical compounds from a given set of spices!

Essential Bookkeeping Terms

While studying accounting or bookkeeping, new terms may suddenly scare you. This list will introduce you to some of them:

  1. Revenue—This term represents all cash receipts from goods or services sold. Think of it as the earnings a meat shop makes after selling several kilos of meat.
  2. Expenses: These all include items such as rent, salaries, and office supplies. These items can be considered as ingredients used to operate a market stall.
  3. Assets: The property and things owned by an entity, including cash, stock, or equipment, among others. These are the things you buy from the market to resell.
  4. Liabilities: These are basically the claims to your business, whether secured or unsecured, such as loans or bills unpaid by office actions. They are the quantities left unpaid to the customer in the form of the proceeds from the sale of the store's goods.
  5. Profit: This is a positive result when revenue is greater than expenses. Thus, you will certainly still have some cash on the side even after finishing all the purchases in the market.

Loss occurs in situations where the cost is higher than the revenue. For example, you might need to spend part of your savings on a market stall.

Setting Up Your Bookkeeping System

You've been talking about how you understand the basics of bookkeeping even though it's time to set up a bookkeeping system, which is the core of your financial management. Your bookkeeping system represents a commonplace and central point where each transaction recording is taken care of and out from which you can know the financial fate of your business. The art of collecting accounting information is deciphered by selecting one, bearing in mind your findings, optimizing the system, and setting protocols for your business to run smoothly without hindrance.

Choose Your Bookkeeping Method

There exist two ways of bookkeeping: cash accounting and accrual accounting. You shall select the method of bookkeeping that will be best for your business, depending on its type and complexity.

  1. Cash accounting suits small businesses well in Singapore when income and expenditure are average. Its operation is easy because you record revenue only when you get the cash and expenses only when they are paid for. For example, let's consider a business that sells groceries. People buy groceries and pay for them immediately. On the contrary, the cost of new inventory arrives after the payment.
  1. Accrual Accounting shows a better picture of an enterprise's financial status. It records the income as earned and expenses as incurred regardless of when or when the revenue was earned. It's a little more complex to prepare, but it can suit a company that trades on credit or has some purchases on account. View it as a comprehensive ledger where all the sales get recorded the minute you close a deal with a client, even if the client still has to pay. All the purchases get recorded once the customer decides they want an item, even if the customer still needs to pay for it.

Once your company has to decide between the two, the help of a qualified accountant can be beneficial. They can give a good reason and make you think about it to set your company on the right path.

Selecting Your Bookkeeping Tools

The materials you select for bookkeeping could depend on the tool's comfortability and the size of a business. However, the more entities we have within our operation, the more complicated the bookkeeping process will be. For the result to look acceptable, both parties need to do a proper accounting using any historical cost.

  1. Manual or Paper Bookkeeping: People write their information on paper or input data into computers and then write down the same data on paper using based sheets. The next step is to store these handwritten data in big file cabinets for future use. Unfortunately, this method will cost the company nothing except buying the necessary equipment. Thenceforth, the only problem is that it consumes a lot of time, especially during computations like trial balances.
  2. Accounting Software: There is an abundance of proficient accounting software programs in Singapore. These apps are equipped with essential automation tools, can do the task quite precisely, and can be made to send notifications of due dates. Their functions can be likened to that of a virtual assistant, which helps to simplify tasks, save time, and eradicate/minimize errors.

Although accounting software may be beneficial for a company's expansion, small companies with few transactions can still use a manual system.

Recording Daily Transactions

Now that all of the elements of your financial command center are in place, it is also important to keep them settled down and engaged through patience in developing them and their daily use. The same principle applies to recording your daily inflows and outflows.

Why Track Every Penny?

Remember that it does not matter where you are, small or big; every sales and purchase transaction should be recorded appropriately. In the same way, the doctor cannot perform a proper diagnosis on the patient by just looking at his incomplete health record; similarly, I want you to feel that life is not easy without an operating statement to account for; however, another question rises but how come the evaluations of earnings increasements are projected all of a sudden, and nothing appears only for supposing it once in a while that is much hard work to have an approximate figure of each financial issue in the business?

Common Transactions and Recording Them with Care

Here's an in-depth study of recurring business functions and how you can enter them the right way into your ledger:

  • Sales: When the money from the sales reaches your ledger, you must record the revenue account. Allocate it to the account of sales. For example, when you make a transaction with a happy customer, it is possible to record its income in your ledger.
  • Purchases: When you buy supplies and equipment, you need to enter the expense amount and categorize it correctly (such as "Office Supplies"). The analogy would emphasize the costs of ingredients you use for your market stall.
  • Salaries: If you compensate yourself or your staff, you must register it under the "Salaries" account as an expense. It is as if you paid your market stall assistants their salaries, and both parties recorded the same.
  • Loan Payments: Upon collection, record it as an expense. Split two constituents, one of which should be for interest and the other for principal reduction. In the same way, you log how much money you spend for your market stall loan, covering the actual interest and eventually paying off the loan's principal.

Taming Your Bank Statements

The role of your bank statements in verifying your records to recheck your financial transactions must be considered. Indeed, matching up the figures of your recorded transactions against the ones in your bank statement lets you spot many contradictions. You can imagine it as cross-referencing your stock if you sell your goods on the market to your bank account to match them up, and luckily, the process brings about complete transparency. Identifying errors and missing information is an excellent practice to keep the right trajectory within the money trail of your enterprise.

Recording Tips for Smooth Sailing

Here are some additional tips to ensure smooth and accurate transaction recording:

  • Adopt a Recording Habit: You should habitually record transactions every day. You can make them a custom of every day, which is convinced only to allow the time needed to clean up important notes to be shorter and to use them.
  • Standardization is Key: Set up the business transaction recording process according to a specific and the same way. Following this method will make it easier to manage and review your records in the future. It is like following a specific process for recording market transactions, making it simple to know your finances later.
  • Categorize with Care: Utilize the chart of accounts for a careful transaction categorization process. This will significantly help in the company analysis and report generation. It's like examining market sales and expenses closely to understand your financial affairs better.

Staying Organized for Tax Season and Beyond

In addition to the importance of recording transactions, good bookkeeping involves far more than just capturing daily business transactions. Learn the risks of missing ones and consider this relevant example of how using online tools, managing a healthy bookkeeping structure, and staying regular in updating it using tech can lead to a better financial position.

The Power of Receipts and Invoices

Don't ever sell short receipts and invoices, but remember their high effectiveness at taxes. It is up to these documents to ensure that all tax credits are valid and that you can exonerate these costs. Create a system that you would use to collect and store these documents, but ensure that only you have access. Think of some software or folders to put your papers on, and if you still want regular paper bills. They basically act as archives in your trading tent, which comprise necessary documents to prevent future problems.

Categorizing Expenses for Tax Advantages

Singapore's tax system enables businesses to make deductions. Keeping excellent books can help you see which of your business expenses are deductible before submitting your tax returns. Thus, you would not be liable to pay your taxes if your business qualifies for deductions while you are also able to enhance your business's earnings. Imagine that meticulously listing every possible expense of yours during a period and then identifying the items that you can use as a deduction is like taking a shop full of extremely disorganized goods and then being able to see better the on-sale items bothering you in the first place.

Understanding Singapore's Tax Requirements

Attached to the business model, filing tax returns differs for each business structure (sole proprietorship, partnership, etc.). Be conversant with the Inland Revenue Authority of Singapore (IRAS) guidelines for small companies. Contact a tax advisor for a consultation to ensure compliance with the law and benefits claim through all eligible deductions. By comparing taxes to a bustling Singaporean marketplace, touch on this topic. Tax requirements are also component-specific, so having assistance can ensure they are appropriately implemented.

Cash Flow: The Lifeblood of Your Business

Imagine running a small-scale business – the cash flow is how money enters and leaves both hands. The cash flow knowledge enables you to prepare for upcoming needs and make the right decisions to get along on the money planet. One of the most straightforward tactics- the cash flow forecast construction makes it easier to track down the cash inflows and outflows. In other words, think of it as creating a business plan, but for the cash flow, including how much cash you expect to get through the sales and, on the other hand, your expense estimate. It is a strategy to have good cash for your business when it is the best time. This will help you avoid running out of money at a critical moment at work.

Proactive Cash Flow Management Tips:

Here are some tips for proactive cash flow management:

  • Set Clear Payment Terms: Make the terms you pay your customers known in writing to reduce the possibility of late payments that would affect your cash flow. This example is a lot like having your stand clients take note that on a particular day, they have to be ready to pay you.
  • Track Accounts Receivable: Administer customer credit policy by identifying delinquent payments and making timely collections. Imagine tracking your market stall customers to see who still needs to pay you for their purchases.
  • Manage Inventory Levels: Maintain your optimum stock to prevent a blockage of money and obtain maximum benefit when cash flow increases. This is likened to your market stall having the right quantities of bananas and strawberries—not too much or too little.
  • Budget Wisely: Establish a realistic budget to ascertain the probability of your activities remaining within the confines of available resources. Picture in your head if you have a plan and allocate your funds properly for the things you need in your market stall.

Effortlessly Simplify Your Finances with Jaz

Efficient bookkeeping not only provides you with an opportunity to have full enlightenment on your finances but also allows you to perform any business operation in Singapore and prosper for a long time. Ensuring you have all the things we mentioned in place, you'll already be prepared to establish your firm's prosperous future in the financial field by means of non-creative methods.

With Jaz, you have an all-encompassing accounting software. It streamlines intricate tasks like invoicing, managing bills, reconciling bank statements, handling payments, and calculating taxes. This automation lets you invest time nurturing your business or delivering superior client service. Jaz simplifies complexity, enabling growth.

Get Started for free and take control of your financial operations with Jaz.

Frequently Asked Question (FAQ)

1. What is bookkeeping, and Why is it Essential for Small Business Owners in Singapore?

Bookkeeping refers to the crucial task of accurately recording financial transactions. For small businesses in Singapore, good bookkeeping can help collect precise financial data required for making decisions, statutory reporting, tax returns, controlling expenses, handling cash flows, and identifying steps for further growth.

2. How Can I Set Up Bookkeeping for My Small Business?

Track the financial behavior and practices of your small business, including opening a business bank account, downloading an accounting app, recordkeeping, choosing someone to help you, and keeping an eye on the finances monthly.

3. Why Should I Use Accounting Software for My Bookkeeping Needs?

Accounting software automation proves to be very convincing, allowing entry into well-documented financial transactions and timely reporting. Many advantages of it are expedited collection, tax compliance, time-saving, and scalability, which are easy for small businesses to comprehend.

4. How Important is a Dedicated Business Bank Account for a Small Business?

One of the most important things to do to maintain adequate and professional recordkeeping with your finances in hand is to have a separate business account. A separate business bank account helps to handle bookkeeping and accounting processes.