Small Business Accounting vs. Large Corporation Accounting
Accounting requirements must be tailored to a company’s size and complexity. Waterford is an accounting firm that has a deeper understanding of the niche of small business contractors. Our definition of a small business is an entity with revenue under $30 million, privately held, and typically with a few partners at most.
Even in the category of small businesses, there are different levels. A one-man show will have different accounting needs than a business with annual revenue in the $10 million range. However, both are comparable.
Where the differences truly begin is with large corporations. Publicly traded companies, such as Walmart or Target, have accounting needs that differ significantly from those of any type of small business. This blog focuses on the differences in accounting for large corporations and small businesses, no matter their size.
Generally Accepted Accounting Principles
A similarity that all accounting will follow is the Generally Accepted Accounting Principles (GAAP). Even accounting system software utilizes these principles in establishing its standard accounting practices, as they are widely recognized nationwide, and some are even recognized as global standards. Larger businesses specifically follow the GAAP standards because they are now regulated by not just the IRS, but also the SEC.
Securities and Exchange Commission
A brief explanation of the SEC (https://www.sec.gov/), the Securities and Exchange Commission. They have three main tasks: protecting investors, maintaining fair and efficient markets, and facilitating capital formation. This affects the accounting for large corporations, making they have a standard set for investors and trading stock. Often, these larger companies undergo quarterly audits by the SEC due to the higher standards for investor protection that the SEC imposes.
Small businesses do not generally have outside investors. GAAP remains important, but rigorous audits and SEC rules will not be applied to the same level as those of larger corporations. This does not mean they cannot set up their books and financials to these standards.
In fact, if you are looking to secure loans or attract investors, it will help to already have these standards in place for your business. Another instance where having these strict principles in place would be when looking to sell your business. The business and books can look more appealing with the presentation standard.
While you may decide not to have such strict books because you are not conducting audits every quarter, you will still need to track basic accounting line items, such as assets, liabilities, cost of goods, expenses, and income. You will still have standard reports like income statements, cash flow statements, and a balance sheet.
Breaking Down the Differences
Small businesses typically maintain one set of books, whereas large corporations are required to keep two separate sets of books. Small businesses will also see a significant reduction in items like class tracking, as well as the simple difference in transaction counts. When working with these smaller businesses, we see thousands of transactions a year, whereas these accounts are likely to see thousands of transactions a day.
Assets
If we look at a corporation like Walmart as an example, it would have tons of depreciable assets. This would mean having a system to track all of your assets.
For instance, if you have a fleet of 20 vehicles, that is still a substantial number of assets, but it can be tracked within your books, eliminating the need for separate records. While the clients that we work with mostly use Xero or QuickBooks online. A software that assists in these more complicated systems would be closer to Oracle or Sage.
Liabilities
Loans and cash flow are definitely going to be different for a large company because they are required to track how much of their debt is considered current debt. Current debt refers to any amount that is due within the next 12 months. That doesn’t just mean debt with terms of less than 12 months; it means they literally have to break out a portion of their long-term debt as short-term debt.
This means breaking out just the portion of debt from your large loan so it’s reflected as a current liability for that year. Well, it doesn’t hurt for small businesses to do that, so you can understand where your cash flow is going. You are not required to do that.
Payroll
A significant difference between these two scales of business is the size of the accounting department. Large corporations will have entire departments dedicated to accounts payable and accounts receivable, with multiple accountants on staff. Smaller businesses may have one to four people within their accounting department. The majority of our clients either rely on us completely or have one to two in-house personnel handling accounts receivable.
A significant difference will be the substantial disparity in payroll itself. Payroll is going to look extremely more daunting because you’re going to have so many more situations going on when you are employing that many people. Even if you have a six-man show and one of them is paying child support, you must ensure that the child support is being withheld from their paycheck and also paid to the state. Now, imagine having 60 people that you are trying to track.
Equity and Ownership
The final difference will be how the books are set up in terms of equity. Small businesses can have various tax entities, including single-member LLCs, sole proprietorships, multi-member LLCs, partnerships, or S corporations. All of these are passed through entities, which means when you go to file taxes, you file a form for the business, but the actual income is passed on to the owners.
For example, if you are an S corporation and your business earns $ 4,000 net at the end of 2025, you will receive a K-1. This K-1 amount will be reported on your 1040, which is an individual tax filing. It also means that you can withdraw money from your own business at any point, and this is also reflected on your 1040.
C corporations have shareholders, which means there are more rules governing how money can be taken out of the company. You cannot just take a distribution. In the corporate agreement, you must have a dividend for any amounts that you withdraw.
What to do with this Information?
In the end, it comes down to the fact that there are reasons why large businesses have all these rules, and small businesses should do their best to follow them. However, small businesses are not running into the same complications that many larger corporations are experiencing. You can learn a lot from these large corporations, but don’t overcomplicate your business finances and operations to try to reflect that if you don’t have a solid understanding of the basics for small business financials.
Waterford is here to help you build a strong foundation. This will help you understand your finances better. If you choose to sell your business or grow into a public company, we can support you in meeting advanced standards. In fact, we have an entire blog dedicated to start-up accounting, in case you are just getting started with your business.
