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!
Do you need some advice? Ask your fellow readers!
Click below to see small business accounting problems from other visitors to this page...
What accounting information I need to take over one company's accounts from the previous accountant?
I am planning to takeover my friend's business account from his previous accountant, I don't know which information I need to set up my friend's company …
Sole Proprietor Accounting Question
My husband and I own a small handyman and lawn care business. My husband is the sole proprietor and I take care of the finance side of things. What is …
What's the difference between income and profit?
I hear these terms used interchangeably sometimes, and I wonder what's the difference between profit and income. Thanks! ------------------------------------------ …
Does making a loan payment lower my profit?
If I make a lump sum payment to lower a loan will that lower my profit? Joe, thanks for the question! The 2 ways to lower your profit are to decrease …
What and where would I put past balances in QuickBooks to setup a company in Qbooks? Not rated yet
Hi, We have a setup of business of computer software that has a product and this product are using our customer and we are charging them by recurring …
Getting started paying business expenses Not rated yet
I just started my home inspection business. I paid for the classes and equipment needed to start the business on my personal credit card. How do I use …
firstname.lastname@example.org Not rated yet
How do I record this entry? Paid $200 for Advertising on Account Paid $200 for Advertising that was on Account ============================== …
I'm a sole proprietor of a construction business. How do I complete a balance sheet? Not rated yet
I'm a sole proprietor of a construction business. How do I complete a balance sheet? A bank is asking that I do this before they offer my client a construction …
General ledger problems Not rated yet
The quarter is closed - General ledger was not balanced - what kind of adjustment can I make to close for the next qtr. I am using money works. ======================= …
accounts department on Interior and Exterior firm Not rated yet
I am the only one and first employee of accounts and finance department. how can i start my tasks? there are expenses and revenues. but how can i sort …
settlement check to the Department of Justice Not rated yet
What expense account would a payment to the Dept. of Justice for settlement of a complaint show under? -------------------------------------- That's …
Vehicle Lease/Hire Not rated yet
Someone left an anonymous request on my "Ask the Expert" page: I do not know how to handle books for my Vehicle lease business. ---------------------------------- …
Basic accounting questions Not rated yet
1. What is going concern 2. what is monetary value 3. what is periodicity 4. what is revenue recognition 5. what is expense recognition -------------------------- …
accounting Not rated yet
If I have capital is it better to deposit in bank or to carry on with business? And why? ========================================== I'm assuming …
Rice Mill Not rated yet
How do I maintain rice mill accounting? ======================================= Well, I don't know much about rice mills, but when you're just …
Credit card expenses and payment of credit card Not rated yet
Is using a Credit card an expense at the time of use or at the time I pay credit card bill? ====================================== Subhash, This …
How does this work when working as the head of a group project? Not rated yet
Everyone in this group project has their own role and I decided to take on a new role by putting myself in charge of keeping us rich. What tools and learning …
Retail Chart of Accounts Template Not rated yet
I cannot find a downloadable template specific for a retail business selling ladies fashion, handbags and accessories. I am actually requiring the Chart …
Start up costs Not rated yet
When you start a small business what do you debit and credit for purchases that you make to start the business?? ================================== …
How can I make a flow chart of my rice production for accounting? Not rated yet
How can I make a flow chart from production to packing? How do I make an accounting system for my rice production? =============================== …
can you use the penalty expense account for late payments also Not rated yet
Can I use the penalty expense account for my late payments as well as penalties ----------------------------------------- Hi Renee, Usually what …
EXPENSES Not rated yet
IN MY HAIR SALON I PURCHASE COLORS BRUSHES BOWLS SHAMPOO THAT I DONT SELL. I USE THEM TO PERFORM MY SERVICE. I RECORD THIS EXPENSE WHERE??? THE ONLY PLACE …
Where can I learn to understand the concept of Accounting? Not rated yet
I'm a student in an online Accounting class and completely underwater from the start. I know accounting is a logical process (I am logical) but I can't …
Closing out fiscal year Not rated yet
How and when do you close out your fiscal year? -------------------------- Hi Toni! First things to do at year-end are to reconcile your bank …
Are accounting and finance the same thing? Not rated yet
Question from Ask the Expert! I would like to ask you -Are accounting and finance same thing? -------------------------------------- Yes and No. …
Are outstanding expenses income or expenses ? Not rated yet
From Ask the Expert! Are outstanding expenses income or expenses ? ------------------------------------- By 'outstanding expenses' do you mean …
Question from a reader: How can we make chart of accounts easily? Not rated yet
I don't have much experience in accounts so I am confused..... ------------------------- The Chart of Accounts is simply a list of the 'accounts' …
FARMING Not rated yet
From my Contact Me page: Grace writes: I have a small maize farm. How do I start a seasonal basic set of books of accounts to enable me to determine …
How to start a small hotel service Not rated yet
Here's a submission from my Ask the Expert page: With just a small amount of starting capital, how can i start/run/a small hotel service? ---------------------------- …
When I opened my construction business(LLC) I wrote checks out from my personal account while waiting for my business checks. Can I just write myself a check and memo it reimbursal? Not rated yet
From my Contact Me page: William writes: When I opened my construction business(LLC) I wrote checks out from my personal account while waiting for …
boutique shop Not rated yet
I need to know how to arrange the accounting book. --------------------------------------- When you're just starting your own small business, you …
loan sport business Not rated yet
how can i do an analysis for my project ' what step to take me to completed? ** Thanks for reading my site! What type of analysis are you trying …
I do need to know the Assets=Liabilities+Equity. Not rated yet
I can't figure out which is debit and which is credit on almost all of these accounts ______________________________________________ Barbara, …
how do know if something is a cash reciepts journal Not rated yet
how do you know whether an account is a cash reciepts journal ------------------------------------------------ Portia, Thanks for visiting my site! …
How to account for salary expenses vs client income in account tracking. Not rated yet
We are a services only business providing social media services to our clients. We are trying to track our expenses vs income per client to see if our …
Return from Basic Accounting Concepts to our Home Page for more info!
Confused about some accounting lingo? Check out my Accounting Glossary.
Click here for tips on Accounts Payable.
Click here to learn more about Accounts Receivable and collecting what's owed to you.
Need some help setting up a simple bookkeeping system? Want to save money by doing it yourself?
Check out my e-course, Keep Your Own Books! It's available
ANNOUNCING MY FIRST E-COURSE!
Keep Your Own Books! is now available as an e-course.
Learn to set up accounting files, create your own chart of accounts, create and use your own cash journals, and learn to create monthly income statements. Get lots of samples and some extra info too!
Here's the link:
Subscribe to my Newsletter! Use the box below to start getting small biz accounting tips and help every other month in your mailbox.
Need a loan? Try Lending Club. I did and the process was quick and easy.
Got a business or a hobby? Make extra money with a content based website. I did! SBI is more than a web host, it's a business builder!