Introductory Guideline For Small Business

Understanding the financial aspects of a business is critical to its success. This involves tracking costs and revenue, planning finances, and handling tax matters. Regardless of the business type, accounting practices provide a systematic approach for everyone to understand financial transactions in a comparable way.

No business can function without accurate bookkeeping. It’s normal not to know everything yourself, and many small businesses turn to accounting services for help. In Kenya, providers such as Revise Finance offer convenient services tailored specifically for small businesses.

Here are essential tips and guidelines from a beginner’s guide to accounting that every entrepreneur should know:

General Good Practice in Kenyan Accounting Standards

In Kenya, general good accounting practices are codified under the International Financial Reporting Standards (IFRS), adopted by the Institute of Certified Public Accountants of Kenya (ICPAK) and the Kenyan Companies Act. These standards are widely recognized and provide a clear framework for accounting and financial reporting.

Key principles outlined in the Kenyan accounting standards include:

1. Accrual Principle:
   • The accrual principle states that transactions should be recorded when they occur, regardless of when cash is received or paid. For instance, revenue is recognized when it is earned, even if the payment hasn’t been received yet. This ensures that financial statements reflect the economic reality of a company’s operations.
2. Conservatism Principle:
   • Also known as the “principle of prudence,” conservatism suggests that accountants should be cautious and conservative in their estimates and judgments. When faced with uncertainty, they should err on the side of understating assets and income while overstating liabilities and expenses.
3. Consistency Principle:
   • The consistency principle ensures that a company uses the same accounting methods and principles consistently over time. Changes in accounting policies should be disclosed and explained in financial statements.
4. Cost Principle:
   • The cost principle dictates that assets should be recorded at their original cost, not their current market value. This principle emphasizes reliability and verifiability.
5. Economic Entity Principle:
   • The economic entity principle states that the business’s financial transactions should be separate from the personal transactions of its owners. Business and personal finances must be distinct.
6. Full Disclosure Principle:
   • The full disclosure principle requires companies to provide all relevant information in their financial statements. This includes explanatory notes, disclosures required by accounting standards, and any other relevant details.

Key Obligations of Accountants

Kenyan accountants are entrusted with the significant responsibility of managing company finances and ensuring compliance. Their core obligations include:

• Keeping accurate records of all company transactions.
• Organizing systematic documentation for all financial activities.
• Preparing mandatory annual reports and other periodic statements.
• Providing tax planning assistance and ensuring compliance with tax laws.
• Retaining accounting documents for the legally required period.

For smaller businesses without a dedicated accountant, these tasks are often outsourced to third-party service providers.

Key Requirements for Original Accounting Documents

Each original accounting document should contain details that verify the economic transaction, such as:

• Transaction content, figures, quantities, and pricing.
• Seller and buyer names with contact information.
• Date or period of service delivery or sale.
• Document number and preparation date.
• Payment terms, including due date and payment details.

For VAT recovery, additional information like the VAT number, rate, and amount due should also be included (see the Kenyan Value Added Tax Act for more).

Retention of Documents

Kenyan law requires original or digital copies of accounting documents to be kept for seven years. If a supporting document is missing by the time the annual report is prepared, the expense may be considered non-business related and subject to income tax.

To ease this process, several companies offer services to automate expense management. Solutions from providers like Revise Finance help automate this and ensure proper compliance with Kenyan accounting standards.

Navigating Advanced Financial Strategies and Utilizing Modern Technologies

To further enhance your business’s financial strategies, it’s crucial to understand advanced accounting techniques such as cash flow management, cost reduction strategies, and efficient asset management. These approaches not only improve your financial acumen but also position your business for better financial health and investment readiness.

Furthermore, in today’s digital age, integrating technology into your accounting practices can significantly increase efficiency. Tools like cloud-based accounting software not only streamline processes but also ensure accuracy and real-time financial data access. Small businesses can benefit from these technologies by reducing the time spent on manual bookkeeping and focusing more on strategic financial planning.

All this requires significalt investment and expertise. If you are looking to boost your business’s financial management contact us at Revise to help you handle your accounting, tax consulting, and CFO services. With our expert team, state-of-the-art tools, and personalized services, we ensure your finances are meticulously managed so you can focus on growing your business.

Are you ready to take your business’s financial management to the next level? Let Revise handle your accounting, tax consulting, and CFO services. With our expert team, state-of-the-art tools, and personalized services, we ensure your finances are meticulously managed so you can focus on growing your business. Contact Revise today to discover how we can help you achieve financial excellence and business success.

For further reference, you can visit the following resources:

1. ICPAK – Financial Reporting Standards: icpak.com
2. Kenyan Companies Act: kenyalaw.org
3. Kenyan Value Added Tax Act: kra.go.ke