Most small Singaporean business owners view accounting as a tiresome process that takes up time and effort.
Although the majority of business owners have a basic understanding of the concepts and purpose of accounting, they often fail to acknowledge how much it can aid in improving the profitability and general financial position of their business. Accounting plays a crucial role in the overall decision-making process of a business.
Accounting can be divided into two procedures, bookkeeping and generation of financial statements. Bookkeeping is all about analysing and recording business transactions on a daily, monthly, and yearly basis. Accounting as a whole is the consolidation of the data collected from the bookkeeping procedure into statements that are analysed by the stakeholders of a business to give an understanding of its financial position. Bookkeeping can be considered the beginning stage of accounting, while the generation of financial statements is the result.
The whole accounting process can be summarised in these 6 steps:
- Step 1: Analyse, categorise, and record daily business transactions into their respective classifications
- Step 2: Create a general ledger for all the recorded transactions. The general ledger will include all the transactions for each classification or category
- Step 3: Prepare the trial balance (unadjusted) using data from the general ledger
- Step 4: Prepare the adjustment journal. This is where entries of any adjustments are made to the records
- Step 5: Input adjustments into the trial balance. The trial balance is only completed after all adjustments are made
- Step 6: When the trial balance has been completed, 4 financial statements can be produced, the balance sheet, changes in equity, cash flow, and profit and loss statements
In order for business owners to make beneficial educated decisions, they require a summary of the business’s financial information to get a clear picture of their operations. This is what accounting is all about.
All companies in Singapore are required to file their annual returns with the Accounting and Corporate Regulatory Authority (ACRA). The filing is carried out after all the required financial statements have been produced. The process can take some time as it is a tedious process, especially for smaller businesses.
Large and established businesses may choose to do their accounting within the company, as they have the resources to do so, but smaller businesses would often opt for outsourcing accounting services from an accounting firm. Although it may seem like a good idea to take care of your own accounting, there are some factors you should first take into account.
1. The cost of accounting software.
Acquiring accounting software that meets your requirements can be expensive and is often too large of an investment for smaller companies that do not have the manpower or resources to invest in large purchases.
2. Ensuring data compliance with the Singapore Financial Reporting Standards (SFRS).
You will need expert knowledge to ensure that all the accounting data is compliant with Singapore Financial Reporting Standards (SFRS). Mistakes in financial reports can be counted as non-compliant.
3. The availability of outsourcing your accounting needs.
The option of outsourcing accounting services gives you the freedom to focus on your business’s main operations and it also gives you access to experts that you can trust to ensure your accounts are done according to Singapore’s compliances.
It may also be a good idea to outsource your business’s financial reports and tax filing requirements with your accounting needs if needed. As this will eliminate the need for repeated adjustments and checks.
However, this does not mean that in-house accounting does not carry its own benefits. If your business has the means, it can also be a great option.
In conclusion, it is important to understand what your business needs and what is the best way to accomplish its goals.