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Going Back To Basics: Accounting for Beginners

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by Startacus Admin


You may already hire an accountant in your business, so you consider you can leave financial matters to them. While your accountant will take care of preparing your accounts for the IRS (Internal Revenue Service) and advising you on the financial position of your company, it’s important for you to understand financial matters, too. 

This will help you understand at all times how your business is doing financially, so some basic accounting knowledge is well worth acquiring.

Tech to the rescue

Much of your basic bookkeeping and financial tracking can be accomplished by using tech such as accounting packages that complete the necessary financial admin, and POS (Point of Sale) systems to track sales and income to give you a rapid overview of business levels. 

Armed with this information and regularly updated records you have the basic facts to assess your business and, importantly, the knowledge necessary to take action if you need to. 

Accounting fundamentals 

It’s important to understand the GAAP (Generally Accepted Accounting Principles) used to put your financial statements together - your accountant should advise you on these. Basically, you should endeavor to become familiar with the system your accountant uses such as double entry bookkeeping.

The core documents you need to understand in terms of financial information are three statements: the balance sheet, the income statement (also known as profit and loss account) and the cashflow statement.

Balance sheet - this shows your company’s assets in terms of equipment, stock and other property owned and your liabilities, such as debts, and equity held by others including shareholders. 

Being able to read and understand a balance sheet is a basic way to understand a business’s financial position. 

Income statement - this shows the company’s income through sales and other revenue generating methods, and outgoings in terms of costs to do business along with other expenses. 

Cashflow statement - this is very important as it gives a snapshot of the company’s true health; it shows when money flows in and out of the business and can flag up potential problems such as if the company is running short of money or may do soon. 

It’s possible for a company with buoyant sales to actually founder purely because too much money is leaving compared to money coming in. 

Understanding what the cashflow statement is saying can ensure remedial action is taken to possibly forestall problems being stored up for later - for example a forthcoming large expense could cause problems if it’s clear not enough money will be flowing in to meet it adequately.

You can add to your accounting knowledge with any number of online tutorials plus various inexpensive or even free basic accounting and bookkeeping courses. 

Keeping up to date and scheduling 

Basic organizing of bookkeeping and accounting is important, so if doing your own bookkeeping then attend to it frequently - how frequent will depend on how often transactions take place. 

Your accountant can help here, but schedule when you’ll gather up information to prepare for tax assessment by the IRS (Internal Revenue Service) - you won’t want to be engaged in a frantic paper chase with deadlines looming.

Have regular sessions with your accountant to be sure you’re understanding what your records are telling you and refine and update your basic accounting knowledge as you do so.

Learn from your trusted professional adviser.



 


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Published on: 12th June 2019

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