Accounting Basics For Small Business Owner

Accounting  Basics For Small Business Owner

As a small business owner, you have to wear many hats. Unless you outsource it, that includes bookkeeper and accountant. You don't a fancy four year accounting degree to handle your business accounting basics, but it is important to have a grasp on important concepts to ensure accurate management reporting and Tex fillings.

 Cash vs. Accrual Basis 

The first important accounting decision is your accounting method. For service based business, you can chose between cash basis and accrual basics.

Cash based means all of your accounting books are based on date that cash moves the hands. For example, if you provide service on 1st January and get paid of February 1st, the transaction is recorded on the books for February, when cash changed hands.

Accrual based means all of your accounting books are based on date the service is performed. Following the example above, the transaction would be recorded on January 1st, as that is when the service took place.

There is no right or wrong here, just what make the most sense of your business. Typically cash basics is easier, particularly you are doing your own books. However accounting software like Quick books makes it easy to manage your books either way.

Debit and Credit Basics

First of all you have to understand the concept of debit and credit, and how your general ledger works.Every time money moves its should be recorded in general ledger.the general ledger has two components debit and credit.  Because every entry has two components its called double entry system .

Create a Transaction Every Times Money Moves

Accounts payable (AP) and recoverable (AR) are not just process to track invoices expenses,  they tie directly into your  AP and AR accounts on your company's  general ledger. doing this consistently helps keep every thing organised, in order, and accurate while you are busy running your business and hustling to keep bringing in the cash!

Owner's Equity and Clean Reports

You can't just pay yourself and not record it in the books. There are a couple of general ledger accounts that are impacted when you put money into the business and take money out.

First, owner's equity. If you spent money out-of-pocket on the business, that should be recorded and reflected. The other expenses should be recorded as expenses, and the you use to found expenses should be recorded in the owner's equity account    

Clean Book Create Clean Reports

All of these debit and credits comes together to perform two very important business functions .

First, your accounting record sit behind any business reporting you have access to through your man at all yourself,  having up-to-date books is vital in accurate Tex preparation and fillings. Doing it wrong can lead to audit and palatines!