Basic accounting is really just recording events as they happen, and then gathering those events into one place, for example, a Profit and Loss Statement (a.k.a. an Income Statement).
It would be helpful to learn some basic accounting concepts before you try to learn the specifics of accounting for small business.
There are a few "rules" for this process. These rules are called Generally Accepted Accounting Principles, or G.A.A.P. (pronounced "gap"). These accounting principles are supposed to keep all accounting information useful and relevant. And to keep businesses from "fudging" or playing with the numbers. Not to say that never happens...
But not here. We want our small business accounting to be accurate. For example, we don't include our personal expenses in with our business expenses. And we record 30 days of income with 30 days of expenses on our Income Statement for the month (Matching Concept)
We operate out business using the Going Concern Concept - assuming that our business will continue to operate into the future. There are more rules, but I don't want to confuse you with more basic accounting help than you need for now.
We're talking about basic accounting concepts here. I don't want to confuse you with a lot of Accounting textbook concepts and processes. After all, most if not all of you will be using accounting software, which does most of the background work for you. I will be addressing debits and credits and the old assets=liabilities+capital, at some point in another section, for those of you that want to know.
One of the basic accounting concepts you need to know about is the Accounting Cycle. You've heard of the Circle of Life? Well, think of this as the Circle of Accounting.
Every event, like paying a bill, leads to a transaction, in this example a check.
That transaction (the check) is posted into a journal (think checkbook).
These transactions in the journal are gathered together into a financial statement (think bank statement).
That's the Accounting Cycle.
I've just touched on the word "journal" above.
Accounting journals are what we call books of original entry, which just means that you're capturing transactions as they happen, be it a check written, a sale collected on, or a purchase made. Whatever happens, there's an accounting journal for it.
*cash disbursement journals
*cash receipts journals
Well, you get the idea.
If you're using an accounting software program, like QuickBooks
the software compiles these journals for you as you enter a sales receipt or write a check, for example.
If you're using a manual system, don't despair, it's not that hard to do it yourself.
You just need to set up a journal - be it handwritten or in the computer - to record all your cash received (receipts), and to record all your cash spent (disbursements).
Check out my page on Cash Management (you'll find it on my navigation panel to the left) for more info on setting up cash journals.
You can also find specific instructions and sample journals set up and used in my training manual on setting up and using a Manual Accounting System. Remember in the explanation of the Accounting Cycle, we had transactions, journals, and then statements.
Financial statements are very important and useful to you as a small business owner. They show you the health and value of your business (Balance Sheet) and how much profit you're making (Income Statement).
If you're doing your own bookkeeping with a checkbook and maybe some preprinted invoices, you may want to seek the help of an Accountant or Professional Bookkeeper to prepare Financial Statements for you. If you're only in business part time, you may still benefit from some basic accounting help at least on a quarterly basis.
Just a note...even the most basic accounting for small business can differ based on type of business. There are many types of small businesses, from retail to manufacturing to service to non-profit. There are home-based businesses too. Each business has its own little twist on things.
I'll try to cover most business types in these pages.
Today almost every business owner has a computer. Most of you will be using some type of accounting software, I guess. I personally use QuickBooks.
I didn't like it at first, because it's not made for accountants. It's made for small business owners. Perfect, right?
The more I got into using the software, the more I grew to like the many reports - many you can create and modify for your own needs - and ease of moving around my clients small business accounting info. It's easy to navigate from client invoices to client payments to pay a bill.
But anyway, that's why I reference it a lot.
So, enough about that.
In the next pages, we're going to go over some ways to help you set up and organize the accounting for your small business.
So go to the next page and let's talk about
setting up your office.
If at any point you decide you don't get it and you need more help, I have e-courses that provide more in-depth discussion and examples.
Also feel free to send me an email if you have questions.
I've been in accounting for over 20 years - working with small businesses - posting deposits and checks, preparing financial statements, calculating and paying payroll, tracking and paying payroll tax returns, preparing budgets, forecasting cash flow, preparing sales tax returns and more.
So, if you discover you need some more in-depth assistance, check out my e-books and e-courses - on my Books and Courses page. It's on the Navigation Bar to the left.
Do you have a small business accounting question? Ask the Expert!
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