Bookkeeping Basics For Small Businesses
Bookkeeping basics are not difficult to understand
However, it may not be sufficient to get your small or medium-sized business an impressive balance sheet. This is one of the most important aspects of business, as a poor accounting and finance track record will sooner or later cost you dearly. Therefore, it is important to learn and practice bookkeeping basics asap.
Accountancy means recording the financial transactions in the books
This involves both the income and payments of the business and represents the basic ingredient of business activity. The records in the general ledger represent the processed as debits and credits and are called the debit side of the ledger. The accountants also deal with the inventory, receive payments, and issue payments. All these activities are recorded in the accounts of the company.
The accountant’s role is to process the financial data so that it can be used to make decisions regarding the company’s future. The accountant must prepare and maintain the accounts, collect information, reconcile the data, and make reports to the management. The accountants are also responsible for maintaining the database of the financial transactions performed by the company. For instance, if the company sells a product to the customer, the bookkeeper must enter the purchase order and keep its record. The software programs used by most modern accountants enable them to input the financial transaction from the point of sale to the payment system.
Before you hire an accounting consultancy, it is essential to know the bookkeeping basics. The basic things that every company must know are how to prepare financial statements, balance sheet reports, income statements, and statement of cash flows. The income statement displays the company’s cash flow performance over a given period, while the balance sheet reports information regarding the total assets, liabilities, and ownership equity. The statements of cash flows reveal how much money a company has, what debts it has, and how it uses its assets and funds to pay its debts and obligations. All these reports are used by the business owner to make informed decisions about its finances.
Another important bookkeeping basics for small businesses is how to set up a profit and loss account. A profit and loss account records the income from sales, purchases, and income taxes. To ensure a correct record of all these transactions, it is essential to maintain separate profit and loss accounts. Sales account tracks the invoices and payments received by the sales office; general ledger accounts for the receipt and payment of invoices; and ledger accounts for all the cash payments entered for goods sold.
Another bookkeeping basics for small businesses taught is the use of the double-entry system for bookkeeping. The double-entry system is a well-known accounting tool used by accountants all over the world. Double-entry bookkeeping involves keeping a complete record of all the financial transactions entered in the books. Moreover, this method helps business owners get accurate results for their tax returns because it is based on the actual data entered in the books.