Accounting Basics For Small Businesses

Accounting basics are essential for any business owner. Learning fundamentals of business accounting is key because it can save you time, and money. You can even search for “accounting near me” on Google in order to learn the basic skills from local tutors. Or search for “accounting companies near me” so that you can get professional help for your business.

This is important because most startups fail within the first 12 months of operation. And it’s because of accounting illiteracy. So, if you’re thinking of starting a business or, already started one, you need to familiarize yourself with these basic skills.

I know that you started your business to solve a specific problem, not because you’re an accounting professional.  Not unless, your business is an accounting company. So, knowing the fundamentals will help you run your business, even if you’ll outsource your services.

So, I wrote this article to help you into the world of business accounting, and by the end, you’ll feel equipped to tackle your own business’s accounting. You won’t be blank even if there is someone who is doing it for you.

Please bookmark this article and always come back as a reference whenever you feel confused understanding your business numbers. In this article, I will be talking about the following:

  1. What is business accounting?
  2. Business accounting basics
  3. Business accounting terminology

I will take you through step-by-step about the fundamentals in order to make you understand the basics.

1. What is business accounting?

So, in simple English, accounting is the process of recording, analysis and presenting of financial information. This analyses of business finances can help you make better decisions about your business. It’s because this information shows the business owner the  financial health of business.

Knowing the basic skills is very crucial for entrepreneurs to successfully run a business.  This is something you will have to either master or outsource if you’re thinking of starting your own business. And you can even do both.

2. Business accounting basics

Business accounting basics are the basic accounting terms and terminologies for the day-to-day business operations. And this involves things you would do in your business whether you like it or not.

These include:

(a) Income Statement

An income statement shows you how much money your business has generated or lost.

(b) Balance Sheet

A balance sheet is a financial statement that shows a company’s assets, liabilities, and shareholders’ equity. So, in simple English, it’s what a business owns and owes.

(c) Profit and Loss (P&L) Statement

A profit and loss (P&L) statement is a snapshoot of your business’s income and expenses during a given period.  It could be monthly, quarterly, or yearly.

(d) Cash Flow Statement

A cash flow statement (CFS) summarizes the total of cash and cash entering and leaving a company. So, it shows how well a business generates cash. And it complements the balance sheet and income statement.

(e) Bank Reconciliation

A bank reconciliation is simply part of life as an entrepreneur.  And I always tell our clients that they should know their business numbers (money). This means the money coming in and going out should be the same with the one in bank records.  That means it’s when you compare the record of sales on books and expenses against the record in bank.

You need a list of transactions from the bank.

Bank deposits

You do this by downloading a bank statement.  But make sure each deposit appears as income in your bank accounts. So, if something is missing, enter it. Because you’ll need to figure it out if it was a sale, interest, refund, or something else.

Books

Each entry should match a deposit on your bank statement, otherwise, something is missing, so find out why.

End Balance

All bank withdrawals should be recorded in your books.  So that each entry should match a withdrawal on your bank statement. Because you must checked all the deposits and withdrawals of your business.  So your business bank balance should match the totals in your business accounts. And this will be the starting point for your next reconciliation of your business.

3. Business accounting terminology

I’m talking about basic terms that you need to know for running your business effectively. You might not use all of these terms in your business but you need to know them in case you need to apply them in your business.

16 terms you need to know for building your knowledge of business accounting

  • Debits & Credits
  • Accounts receivable and accounts payable
  • Accruals
  • Assets
  • Burn Rate
  • Capital
  • Cost of goods sold or cost of sales
  • Depreciation
  • Equity
  • Expenses
  • Fiscal Year
  • Liabilities
  • Profit
  • Revenue
  • Gross Margins

I will discuss about these terms on our next article, Basic Accounting Terms

Conclusion

By now, you should be able to understand the business accounting basics. Because these basics are essential for any business owner. That is why learning the fundamentals is key because it can save you both time, and money.

Starting and running a small business should be easy for you now because you know what a business accounting is, basics, terminology, and how to do accounting for your business.

In the mean time, I just cannot wait to hear from you what you already know about accounting basics.

Please, feel free to contact our team if you need any help in business accounting basics for your business. 

Cheers!

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