For many small business owners in Singapore, the process of accounting is often viewed as a tedious process that takes up valuable time and manpower. Most business owners understand the basic concepts and purpose of accounting but fail to adequately comprehend the extent to which it can assist in understanding the profitability of business operations and overall financial standing, which is important for firm wide decision-making purposes.
Basically, accounting involves 2 procedures – bookkeeping, and the generation of financial statements. While the two terms are often used interchangeably, they comprise of distinct objectives. Bookkeeping is the analysis and recording of daily, monthly, and yearly business transactions; while accounting is the consolidation of this data into statements that allow companies to understand their financial positions, through the analysis of these financial statements. In other words, bookkeeping can be said to be the “initial stage” of accounting.
So, what does accounting involve? Looking further into the 2 procedures mentioned above, the entire accounting procedure can be summarised as follows:
- Analysis, categorisation, and recording of daily business transactions (according to their classification).
- Creating a general ledger for all the recorded transactions. This general ledger will include all the transactions for each classification or category.
- Preparation of trial balance (unadjusted) using figures from the general ledger.
- Preparation of adjustment journal (i.e. entries of any adjustments to be made to the records).
- Input adjustments into the trial balance. The trial balance is only finalised when there are no further adjustments to be made.
- Once the trial balance has been finalised, 4 financial statements can then be prepared – balance sheet, changes in equity, cash flow, and profit and loss.
Accounting is essential for business owners to be able to summarise all financial information that can then be used to have a clear picture of the firm’s overall operations and take decisions.
All Singapore companies regardless of size or status (dormant, solvent, or insolvent) are required to file their annual returns with the Accounting and Corporate Regulatory Authority (ACRA). This is done once all financial statements are prepared and may seem like a lot of work for small sized companies to handle, on top of their main business operations.
Some companies may choose to do their accounting in-house if they have the manpower. For other smaller companies, outsourcing an accounting firm may be the better way to go. While doing it on your own may seem like a good option, there are various factors to take into account.
- Cost of the accounting software. Purchasing an accounting software that meets your requirements may be expensive and can often burn the pockets of smaller companies who do not have the manpower or the required resources to invest in large numbers.
- Ensuring data compliance with the Singapore Financial Reporting Standards (SFRS). Expert knowledge is required when it comes to ensuring that accounting data is compliant with Singapore Financial Reporting Standards (SFRS).
- Outsourcing your accounting requirements. This not only gives you the freedom to concentrate on your company’s main operations; you will also have experts that you can rely on to ensure your accounts are done in compliance with Singapore standards.
Depending on your company’s business operations, it may also be a lucrative choice to have your financial reports and tax filing requirements outsourced along with accounting matters. This can save you time spent on repeated adjustments and checks that may be needed.
This is not to say that in-house accounting does not have its benefits. Certainly, companies that have the needed manpower and finance can run their own accounting bodies to keep a close track of their records, whenever needed.
In the end, it all comes down to what your company requires and how best to achieve those goals.
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