Bookeeping and Chart of Accounts for Retail Business
Bookkeeping is essential for preparing a chart of accounts for retail business. A chart of accounts is the basis of comprehension of the financial budgeting of your retail business. Moreover, a chart of accounts helps you in financial planning by comparing it with the previous financial records. This article will highlight bookkeeping and a chart of accounts for retail businesses.
A bookkeeper records financial transactions, which helps in the financial analysis of a company’s performance. Bookkeepers and accountants perform similar tasks, for example recording financial transactions and preparing income reports at the year-end. Chart of accounts also helps in making financial models for the retail industry.
What is a Retail Business?
Retail is selling products and services to people, as opposed to wholesale, which is selling to businesses or institutions. A retail business buys in bulk from manufacturers, either directly or through a wholesaler, and then sells in smaller amounts to customers for a profit. Retailers connect manufacturers and consumers. Retail businesses deal with a high volume of transactions daily, so bookkeeping and chart of accounts are important in the retail industry. A chart of accounts for retail business highlights the summary of financial transactions.
Retail businesses allow consumers to access a wide variety of goods and services worldwide. The retail industry boosts employment and supports the national economy. Retailers enable individuals to obtain all they require for a happy life by bringing ready-to-consume goods to them. They can go to a grocery, apparel, convenience, or drug store to get the supplies they require right away.
Types Of Retail Businesses
The retail industry is a broad term that encompasses a wide range of businesses. Moreover, different types of retail stores cater to different consumer types and employ different sales techniques. Some of the types of retail stores include:
- Convenience Stores
- Specialty Stores
- Supermarket/Grocery Store
- Drug Stores
- Online Stores
- Discount Stores
Bookkeeping and Chart of Accounts for Retail Business
Accounting and bookkeeping are crucial for the retail business as they help in the financial budgeting of a company. Proper bookkeeping and chart of accounts provide businesses with a trustworthy financial analysis of their financial performance. It also gives data for broad strategic decisions and a baseline for sales and income targets. Therefore, investing extra time and money in maintaining accurate bookkeeping records and a chart of accounts for retail business is vital.
A chart of accounts is significant because it is intended to segregate expenditures, revenue, assets, and liabilities, giving a company a clear idea and picture of its financial health. It also aids in meeting the demands of management reporting while adhering to all financial reporting rules.
A chart of accounts ultimately acts as the basis for your financial statements. Therefore, a chart of accounts is crucial to know the financial health of a retail business. The balance sheet and income statement have five main sections that make up a chart of accounts:
- Petty Cash
- Regular Checking Account
- Payroll Checking Account
- Savings Account
- Investments-Money Market
- Investments-Certificates of Deposit
- Accounts Receivable
- Other Receivables
- Allowance for Doubtful Accounts
- Supplies Inventory
- Pre-paid Expenses
- Leasehold Improvements
- Building Improvements
- Accumulated Depreciation, Furniture, and Fixtures
- Accumulated Depreciation, Equipment
- Accumulated Depreciation, Vehicles
- Accumulated Depreciation, Other
- Accumulated Depreciation, Leasehold
- Accumulated Depreciation, Buildings
- Accumulated Depreciation, Building Improvements
- Accounts Payable
- Accrued Expenses
- Sales Tax Payable
- Wages Payable
- State Payroll Taxes Payable
- SUTA Payable
- Local Payroll Taxes Payable
- Income Taxes Payable
- Other Taxes Payable
- Employee Benefits Payable
- Current Portion of Long-term Debt
- Deposits from Customers
- Other Current Liabilities
- Equipment Payable
- Vehicles Payable
- Bank Loans Payable
- Deferred Revenue
- Other Long-term Liabilities
- Stated Capital
- Capital Surplus
- Retained Earnings
- Sales of Service
- Sales – Retail
- Other Income
- Finance Charges Income
- Shipping Charges Reimbursed
- Sales Returns and Allowances
- Sales Discounts
- Default Purchase Expense
- Advertising Expense
- Amortization Expense
- Auto Expenses
- Bad Debt Expense
- Bank Fees
- Cash Over and Short
- Charitable Contributions Expense
- Commissions and Fees Expense
- Depreciation Expense
- Dues and Subscriptions Expense
- Employee Benefits Expense, Health Insurance
- Employee Benefits Expense, Pension Plans
- Employee Benefits Expense, Profit Sharing Plan
- Employee Benefits Expense, Other
- Freight Expense
Non-Operating Revenues and Expenses
- Interest Income
- Interest Expense
- Gain on sale of an asset
- Loss on sale of an asset
Best Practices to Manage a Chart of Accounts for Retail Business
Maintaining an organized, user-friendly chart of accounts for retail business is the crux of operating a double-entry bookkeeping system. Best practices to manage a chart of accounts for retail business include:
- Be consistent in labeling and naming accounts and subcategories
- Consolidate similar types of accounts where possible
- Wait until the end of the year to delete old accounts
Components of an Effective Retail Accounting Firm
Business Bank Account
Running a retail business requires having a bank account. Remember that a separate bank account is legally required for any company registered as an LLC or partnership. Even if you operate as a sole owner, having a different account can help you maintain the accuracy of your financial records.
Savings account basic balance requirements, and financial transaction fees are often higher for checking accounts. You can examine the rates offered by various banks. Also, Inquire about the terms you can and cannot negotiate with the bank where you have a savings account. Finally, you should also consider the speed of transactions and the banks’ track record.
Tracking business expenses is essential for maintaining healthy cash flow and qualifying for tax deductions that could reduce your taxable income. In addition, separating your business finances from your personal finances helps you track your business expenses more effectively. Many small retail business owners track their business expenses using excel sheets. However, this method is prone to human error and, as your business grows, can be challenging to keep organized. On the other hand, cloud-based accounting software offers an alternative that automates several elements of business expense tracking and helps keep your financials organized.
Bookkeeping involves setting up a chart of accounts for retail business, establishing a system for financial reporting receipts, and correctly matching and billing the appropriate account. Also, it compares sales invoices and bank statements to avoid any errors.
These are some bookkeeping tasks involved in the retail industry:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Managing payroll
- Maintaining and balancing ledgers, accounts, and subsidiaries
Payroll is the total of all compensation an employer must pay to their employees for a set period or on a specified date. It is the process of compensating employees for their work on behalf of their organizations. Therefore, time tracking is essential when complying with the payroll schedule in the retail industry.
When it comes to retail businesses, payroll plays a crucial role. It affects employee morale and reflects a business’s financial stability and reputation. Because employees rely on their paychecks, errors or untimely payments can create a lack of trust. But when paychecks are accurate and delivered promptly, employees are more engaged and motivated.
Import taxation is very important for the retail industry. If your business relies heavily on imports, you must consider the tariffs, quotas, and fees while ordering merchandise from abroad.
Retail businesses should keep a few things in mind while catering to the import taxations and implementation of new import tariffs:
- Stay attuned to profit margin: Try to negotiate favorable deals despite the increase in the import tariffs.
- Understand your pricing: Analyze how much the price of the product can be increased with rising tariffs.
- Manage inventory levels: It is essential to manage the inventory efficiently, especially when uncertainty about tariffs is high.
A productive retail business must follow an accurate chart of accounts and bookkeeping techniques. A chart of accounts for retail business is essential for financial budgeting, organizing your finances, tracking your earnings and expenses, and financial planning.
By keeping up with excellent bookkeeping, you may gather a reliable stream of data for good financial analysis of your finances and determining what financial budget modification needs are for the upcoming quarter. Before you make any substantial investments or reallocate your financial resources, when done effectively, bookkeeping guarantees that all of your income, expenditure and pending financial transactions are operational. No matter how low your existing resources may be, once you have a reliable, consistent bookkeeping procedure, it will be simple to maximize them and grow your retail business.
The success of your business depends heavily on the business’s finances and accurate chart of accounts. OAK Business Consultants understand all financial aspects of businesses. We provide full-spectrum guidance for all financial, management, acquisition, and investment matters of business.