International Journal of Management and Economics Fundamental
6
https://theusajournals.com/index.php/ijmef
VOLUME
Vol.05 Issue01 2025
PAGE NO.
6-7
10.37547/ijmef/Volume05Issue02-02
Accounting and tax system in small business entities
Jamalova Sabrina Omirbaevna
1st year student of the Faculty of Accounting and Auditing, Nukus Innovation Institute, Uzbekistan
Received:
04 December 2024;
Accepted:
06 January 2025;
Published:
08 February 2025
Abstract:
Small business entities play a vital role in economic growth; however, effective accounting and tax
management are essential for their sustainability. This article explores the significance of accounting in small
businesses, comparing cash and accrual accounting methods. Additionally, it discusses tax obligations, challenges
in tax compliance, and best practices for financial management. By implementing accurate record-keeping,
utilizing accounting software, and staying informed about tax regulations, small businesses can enhance their
financial stability and ensure legal compliance. The study highlights the importance of financial literacy and
professional guidance in overcoming accounting and taxation challenges.
Keywords:
Small business, accounting, taxation, financial management, cash flow, tax compliance, bookkeeping,
accounting software, tax regulations, business growth.
Introduction:
Small businesses play a crucial role in the
economy, contributing to employment and innovation.
However, to ensure their sustainability and compliance
with legal requirements, an efficient accounting and tax
system is essential. This article discusses the key
aspects of accounting and taxation in small business
entities, highlighting their significance, challenges, and
best practices. Additionally, the views of scholars are
incorporated to provide a deeper understanding of the
topic.
To begin with, accounting serves as the backbone of
any business. It provides a clear financial picture,
helping entrepreneurs make informed decisions.
According to Needles, Powers, and Crosson, financial
accounting helps businesses measure their economic
performance and communicate financial information
to stakeholders. Moreover, accurate accounting
ensures compliance with legal requirements and tax
regulations.
Without
proper
record-keeping,
businesses may face penalties, financial instability, or
even closure [6].
Furthermore, accounting helps small business owners
track their income and expenses, assess profitability,
and plan for future growth. Collis and Jarvis argue that
small firms often lack the financial expertise of larger
companies, making proper accounting practices even
more critical. By maintaining organized financial
records, businesses can also attract potential investors
or secure bank loans. In short, accounting is not only a
legal necessity but also a vital tool for business success
[4, 100-110].
There are two primary accounting methods: cash
accounting and accrual accounting. On the one hand,
cash accounting records transactions only when money
is received or paid. This method is simple and ideal for
small businesses with limited transactions. On the
other hand, accrual accounting records revenues and
expenses when they are incurred, regardless of actual
cash flow. Although more complex, it provides a more
accurate financial picture.
According to Schaltegger and Burritt, the choice of
accounting method significantly affects financial
reporting and decision-making. They argue that accrual
accounting provides a better representation of a
business’s financial health, making it preferable for
long-term planning.
Additionally, small businesses often rely on accounting
software to streamline their processes. Programs such
as QuickBooks, Xero, and Wave help automate financial
tasks, thereby reducing errors and saving time. Instead
of relying solely on manual bookkeeping, integrating
digital tools can enhance efficiency and accuracy.
Marriott and Marriott highlight that small business
owners benefit greatly from user-friendly accounting
software, which reduces complexity and enhances
financial control [5, 123-139].
International Journal of Management and Economics Fundamental
7
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
When it comes to taxation, small businesses must
comply with various tax obligations depending on their
legal structure. For example, sole proprietors usually
pay personal income tax on business earnings, whereas
corporations may be subject to corporate tax. In
addition, businesses must consider VAT, payroll taxes,
and other local tax requirements.
At the same time, governments often provide tax
incentives or exemptions for small enterprises to
support their growth. According to Atkinson, many
governments use tax policies to encourage small
business development, such as reduced corporate tax
rates
and
simplified
tax
filing
procedures.
Consequently, understanding tax regulations is crucial
for avoiding legal issues and optimizing financial
planning [1].
Despite the benefits, small businesses often face
challenges in managing accounting and taxation.
Firstly,
limited
financial
knowledge
among
entrepreneurs can lead to errors or mismanagement.
Blackburn, Carey, and Tanewski point out that many
small business owners lack formal accounting
education, which can result in poor financial decision-
making [3, 293-317].
Secondly, changing tax laws and regulations can be
difficult to keep up with. Therefore, hiring a
professional accountant or tax consultant can be
beneficial. Moreover, small businesses may struggle
with cash flow management, making it challenging to
meet tax deadlines. As a result, proper budgeting and
financial forecasting are essential. Berisha-Namani
emphasizes that financial planning is a crucial factor in
small business success, particularly in managing tax
obligations and cash flow [2, 45-57].
To address these challenges, business owners should
invest in financial literacy and seek professional
guidance when needed.
To ensure smooth financial operations, small
businesses should adopt the following best practices:
Keep accurate records: Maintain all receipts, invoices,
and financial statements for tax filing and financial
analysis. Collis and Jarvis suggest that systematic
record-keeping enhances financial transparency and
compliance [4, 100-110].
Use accounting software: Automate bookkeeping to
reduce errors and improve efficiency.
Separate personal and business finances: Open a
dedicated business bank account to avoid confusion.
Monitor cash flow: Regularly review income and
expenses to prevent financial difficulties. Blackburn et
al. emphasize that poor cash flow management is one
of the primary reasons small businesses fail [3, 293-
317].
Stay informed about tax regulations: Keep up with
changes in tax laws to avoid penalties.
Consult professionals: Seek help from accountants or
tax advisors when necessary.
CONCLUSION
In conclusion, an efficient accounting and tax system is
fundamental for the success of small business entities.
While proper accounting ensures financial stability and
compliance, understanding taxation helps businesses
avoid legal issues and optimize financial planning.
Despite certain challenges, small businesses can
overcome them by adopting best practices and
leveraging modern accounting tools.
REFERENCES
Atkinson, R., & Lind, M. (2018). Tax Policy and the
Growth of Small Businesses. Washington, DC: ITIF.
Berisha-Namani, M. (2009). The Role of Financial
Planning in Small Business Development. Journal of
Business Economics, 15(2), 45-57.
Blackburn, R., Carey, P., & Tanewski, G. (2010).
Accounting and Financial Management in Small
Business Entities. Journal of Small Business
Management, 48(3), 293-317.
Collis, J., & Jarvis, R. (2002). Financial Information and
the Management of Small Private Companies. Journal
of Small Business and Enterprise Development, 9(2),
100-110.
Marriott, N., & Marriott, P. (2000). Professional
Accountants and the Small Business Client: An
International Study. European Accounting Review, 9(2),
123-139.
Needles, B., Powers, M., & Crosson, S. (2013). Financial
Accounting: Principles and Applications. Boston:
Cengage Learning.
