Accounting is a very important branch of any business and if you are or want to become self-employed and learn how to maintain your financial records straight then you must learn accountancy.
In this article, we'll explain what is self-employment, what is accounting, how to learn it, where to find guidance, and why it is important that you learn bookkeeping or how to fill out financial or tax statements.
There is much more information on our self-employed accounting guide.
Are you self-employed?
Self-employment is when someone doesn't work directly for a company or an employer but offers services to different clients and companies.
Self-employment is also called independent contracting, and these professionals earn an income from different sources and don't have a working contract with one company.
Many people think that self-employment and freelancing are different but freelance work is a type of self-employment. Lawyers, writers, actors, journalists, insurance agents, investors, and salespeople are also workers who can go into self-employment. There is no specialized field, just workers offering their knowledge and services.
It's also very common to mistake self-employment with a business owner. The difference is that an entrepreneur has to hire other people and eventually become someone's boss, whereas a freelancer will work independently trying to get more clients.
Another big difference is that an entrepreneur is not involved in the everyday aspect of the business. But, a self-employed person both owns the business and is also the primary or sole operator.
If you are freelancing you have to know that the payer (or client) will not withhold taxes, so it becomes the responsibility of the self-employed person.
A self-employed person must file annual taxes and pay estimated quarterly tax. On top of income tax, if you become a freelancer, you are also required to pay a self-employment tax.
If you are self-employed and you want to learn accounting continue reading and find some tips on how and where you can acquire the necessary skills.
Where to get help
If you are self-employed and need to learn accountancy there are a bunch of places you can go to get tips.
For instance, doing a simple search online can get you very far. You can find forums, apps, pages, and online communities dedicated to helping freelancers and entrepreneurs with their finances.
There's also software available online for anyone to download and use. Some programs are free, others have free trials, and some have a monthly cost, it all depends on how much you want to invest in these services per month and per year.
If you don't feel like downloading the software you can always learn to use Excel and input all your information there. But, remember that Excel is not a program designed specifically for finances.
However, we would argue that the best way to learn accountancy is by having an expert teach you the basic and more complex things.
If you learn directly from a tutor you can have all your questions properly answered, get the tutor's undivided attention, make the most of your time spent learning, and start applying your knowledge right away with someone constantly helping you.
A personal private tutor will provide guidance and aid you navigate the subject smoothly and you'll be saving a lot of time because you'll work with someone that knows the subject, instead of wasting your time online trying to find the right answer.
Besides, an accounting tutor can aid you with small things too, like figuring out how to pay the debt, how savings work, getting multiple retirement accounts, cutting down expenses, and more.
And the best part is that you won't need their help for long and once you learn everything you can continue working on your finances by yourself. If you hire an accountant to do the work for you you'll have to give them a job and pay them a salary forever.
Remember you can hire an accounting tutor right here on Superprof and you can get the first lesson for free to see the tutor's methodologies and teaching style. If you like the first lesson then you can go ahead and hire them and if you feel like you didn't understand them you can continue looking for tutors.
Learn about accounting
Accounting is a field in the economy dedicated to keeping track of the financial transactions of a company, business, or person. Accountants have the responsibility to summarize and report these transactions and to have ready to present to oversight agencies, regulators, investors, and tax collection entities.
Accounting is one of the key aspects of any business because it helps document the monthly expenses and income.
When you have clients paying you and workers who you employed it's possible not to lose track of the money. That's why companies hire bookkeepers and accountants who know how to start and manage the business's accounts, transactions, taxes, and financial situation.
Accountants can also give you tips on how to fund a project, create a savings account for your business, separate money, create budgets, plan out the expenses of each month, pay off debt, and so on.
Bookkeepers can handle basic accounting operations and are great at managing small businesses and someone's finances. However, if you are looking for more complex operations you should work with an accountant, and if you plan on learning you should hire an experienced accountant.
You should also know that there are several branches of accounting. There's financial accounting, focused on summarizing financial transactions into an income statement.
Another field is managerial accounting where they use the same data used for financial accounting but it uses the information for other purposes. In managerial accounting, an accountant generates monthly reports for the business's management team, these reports are to make decisions about how the business operates.
Finally, there's cost accounting which is the field focused on helping the business's management team make cost decisions.
Students go to school and get degrees in finances and accounting because it is an extensive field of study. However, this doesn't mean you can't make an effort to learn about it on your own.
Why is accounting important?
Accounting is important and incredibly useful for any type of business or company because it allows you to track the cash flow and guide you through the economic aspect of the business.
If you want to maintain your business afloat you must keep your finances clear for days, months, and years.
There are three financial statements used for different things. The first one is the income statement which gives you profit and loss information. Then there's the balance sheet which gives you the financial position of your business on a particular date.
Finally, there's the cash flow statement that reports the money generated and spent during a specific time.
These three key areas of accounting will help your business:
- Create a budget - if you're a business owner you know that budgets and projections can save or kill your business. That's why it is so important for these to be done right and by an expert.
- Keep things legal - you'll be required to fill in legal documents, bank statements, tax forms, and more. This is all part of the job of an accountant and it is necessary if you want your business to be legal and transparent.
- Evaluate business performance - knowing how your business money is moving is very important for many reasons and one of those is because it will tell you how you're performing as a company and how much money you're bringing in or expending.
It's not for nothing that accounting is referred to as the "language of businesses". This field plays a key role in the financial world and if you wish to have a successful year you need to set up a business with clear and transparent finances.
Accounting is important because it was created for recording transactions, creating a budget, planning, making business decisions, tracking financial performance, legal purposes, transparency, and so on.
Have you ever wondered what are the advantages of managing your accounting when self-employed?
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