Posted by Beaton Accounting

Bookkeeping Basics Every Small Business Should Know About

Bookkeeping Basics Every Small Business Should Know About

Basic bookkeeping may sound simple but you’ll be surprised to know that millions of small business owners and startup entrepreneurs who have created great products and are offering high-quality services, actually don’t know very much about it. They may have built awesome teams and won so many customers like nobody’s business but if you’re a business owner who has no knowledge what “accounts” means, you might be under a serious financial difficulty in the long run. Let’s say you have a bookkeeper who does the job for you, organizing your finances, it may still be difficult for you to measure the possibility of your business’s success or failure. Regardless of how knowledgeable are you about digital marketing, if you don’t have a clear financial picture of your business, you’ll surely run into cash flow problems in the future.

Do you know how your accounts receivable look like? Are you always making late bill payments? These may sound like they’re not a big deal at the moment but it will eventually catch up with you sooner or later. To help you better understand, here are the 10 most common types of bookkeeping accounts for small businesses that you need to learn about:

  • Cash. Let’s start with the most basic type of account. The cash account is where all of your business transactions go through. Bookkeepers know how important this account is which is why they two journals for it alone, the Cash Receipts and Cash Disbursements. The purpose of these journals is to accurately track the activities of the business.
  • Accounts Receivable. In this account, products, and services sold by your company that is not paid immediately fall under Account Receivables. You must track it down because the money from customers and keeping it up to date is essential in making sure that bills or invoices are sent on time and accurately.
  • Inventory. Products sitting on your shelf an the ones that are in stock has value and is still money. So you must carefully account and track them. There must be constant testing on the accuracy of the number in your books by doing physical counts of inventory on hand.
  • Accounts Payable. Spending money out of the business can be a pain because, well, no business owner wants to do that. But the pain is bearable if you have an Accounts Payable that is transparent with everything. Bookkeeping isn’t just there to help assure timely payments, but it’s also for you to avoid paying twice to someone. Don’t forget, paying bills early can qualify your business for awesome discounts.
  • Loans Payable. This account tracts what’s owed and what’s due if you’ve borrowed money to purchase equipment, vehicles, furniture and other items used in your business.
  • Sales Account. You will find all incoming revenue from the products and services you sold successfully. If you record your sales accurately and on time, you’ll know where your business stands.
  • Purchases. Any raw materials or finished goods that you purchased for your business is recorded in this account. It will be used to calculate “Cost of Goods Sold” (COGS) which is done by subtracting it from Sales resulting in the company’s gross profit.
  • Payroll Expenses. This account, out of all accounts, is the most costly. There’s no way people will work for nothing. Make sure you keep this account accurate and up to date in order to meet tax and other government reporting requirements.
  • Owner’s Equity. You’ll probably find this account your favorite account out of all because it tracks the amount each owner puts into the business, and if you know that all owners (including you) receive their fair share, you know you’re not wasting money or time for the business. There are a lot of small businesses owned by a group or partners which means not incorporated and there are no stock shares that exist to divide up. Capital Accounts is used instead and Drawing Accounts is used to track the money being taken out.
  •  Retained Earnings. This account records your company’s profits that are reinvested in the business and are not given equally to the owners. It's the running total of money that has been retained since the company started. This is important for lenders and investors to get a clear picture of how the company is doing over time.

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