A basic accounting overview is available at the following link: Accounting 101
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From the Nolo Internet Law Center
A big part of understanding the financial side of your business consists of nothing more than learning the language of accounting. Once you're familiar with basic terms, you'll be well prepared to make sense of basic written reports and better able to communicate with others about important financial information. You'll also be well-positioned to cope with a common business problem: the imprecise or even plainly wrong use of financial terminology.
Accounting is a general term that refers to the overall process of tracking your business's income and expenses, and then using these numbers in various calculations and formulas to answer specific questions about the financial and tax status of the business.
Bookkeeping refers to the task of recording the amount, date and source of all business revenues and expenses. Bookkeeping is essentially the starting point of the accounting process. Only with accurate bookkeeping numbers can meaningful accounting be done.
An invoice is a written record of a transaction, often submitted to a customer or client when requesting payment. Invoices are sometimes called bills or statements, though the latter term has its own technical meaning, as explained below.
A statement is a formal written summary of outstanding (unpaid) invoices. Unlike an invoice, a statement is not generally used as a formal request for payment, but is more of a reminder to a customer or client that payment is due.
A ledger is a physical collection of related financial information, such as revenues, expenditures, accounts receivable and accounts payable. Ledgers used to be kept in books preprinted with lined ledger paper - which explains why a business's financial info is often referred to as the "books" - but are now commonly computer files that can be printed out.
An account is a collection of financial information grouped according to customer or purpose. For example, if you have a regular customer, the collection of information regarding that customer's purchases, payments and debts would be called his or her "account." A written record of an account is called a statement.
A receipt is a written record of a transaction. A buyer receives a receipt to show that he paid for an item. The seller keeps a copy of the receipt to show she received payment for the item. Receipts are sometimes called sales slips.
Accounts payable are amounts that your business owes. For example, unpaid utility bills and purchases your business made on credit would be included in your accounts payable.
Accounts receivable are amounts owed to your business that you expect to receive. Accounts receivable includes sales your business made on credit.
Sounds pretty simple, doesn't it? And it can be, especially if you remind yourself of these two goals whenever you feel overwhelmed by the details of keeping your financial records. Hopefully you will also be reassured to know that there is no requirement that your records be kept in any particular way. (There is a requirement, however, that some businesses use a certain method of crediting their accounts. See Cash vs. Accrual Accounting.) In other words, there's no official "right" way to organize your books as long as your records accurately reflect your business's income and expenses, the IRS will find them acceptable.
The actual process of keeping your books is easy to understand when broken down into three steps.
Whether you do your accounting by hand on ledger sheets or use accounting software, these principles are exactly the same.
Step One: Keeping Your Receipts
Comprehensive summaries of your business's income and expenses are the heart of the accounting process. But they can't legally be created in a vacuum. Each of your business's sales and purchases must be backed by some type of record containing the amount, the date and other relevant information about that sale. This is true whether your accounting is done by computer or on hand-posted ledgers.
From a legal point of view, your method of keeping receipts can range from slips kept in a cigar box to a sophisticated cash register hooked into a computer system. Practically, you'll want to choose a system that fits your business needs. For example, a small service business that handles only relatively few jobs may get by with a bare-bones approach. But the more sales and expenditures your business makes, the better your receipt filing system needs to be. The bottom line is to choose or adapt one to suit your needs.
Step Two: Setting Up and Posting Ledgers
A completed ledger is really nothing more than a summary of revenues, expenditures, and whatever else you're keeping track of (entered from your receipts according to category and date). Later, you'll use these summaries to answer specific financial questions about your business such as whether you're making a profit, and if so, how much.
You'll start with a blank ledger page (a sheet with lines) or, more often these days, a computer file of empty rows and columns. On some regular basis like every day, once a week or at least once a month you should transfer the amounts from your receipts for sales and purchases into your ledger. Called "posting," how often you do this depends on how many sales and expenditures your business makes and how detailed you want your books to be.
Generally speaking, the more sales you do, the more often you should post to your ledger. A retail store, for instance, that does hundreds of sales amounting to thousands or tens of thousands of dollars every day should probably post daily. With that volume of sales, it's important to see what's happening every day and not to fall behind with the paperwork. To do this, the busy retailer should use a cash register which totals and posts the day's sales to a computerized bookkeeping system at the push of a button. A slower business, however, or one with just a few large transactions per month, such as a small website design shop, dog-sitting service or swimming-pool repair company, would probably be fine if it posted weekly or even monthly.
To get started on a hand-entry system, get ledger pads from any office supply store. Alternatively, you can purchase an accounting software program that will generate its own ledgers as you enter your information. All but the tiniest new business are well advised to use an accounting software package to help keep their books (and micro-businesses can get by with personal finance software such as Quicken). That's because once you've entered your daily, weekly or monthly numbers, accounting software makes preparing monthly and yearly financial reports incredibly easy.
Step Three: Creating Basic Financial Reports
Financial reports are important because they bring together several key pieces of financial information about your business in one place. Think of it this way - while your income ledger may tell you that your business brought in a lot of money during the year, you may have no way of knowing whether you turned a profit without measuring your income against your total expenses. And even comparing your monthly totals of income and expenses won't tell you whether your credit customers are paying fast enough to keep adequate cash flowing through your business to pay your bills on time. That's why you need financial reports: to combine data from your ledgers and sculpt it into a shape that shows you the big picture of your business.
Why the numbers, how to set up chart of accounts, use of Quickbooks.
This edition is targeted toward a company with multiple access needs in diverse locations. An example might be a centrally located "home office" with an off-site bookkeeper and/or traveling sales people. My son in the excavation business uses this version. He dumps off a basket full of receipts on more-or-less a weekly basic to his independent business/contract bookkeeper who performs all bookkeeping functions for him. He has no central office, other than the cab of his truck and his cell phone.This version is often used by companies in larger cities where labor costs tend to be higher than in surrounding communities. They Outsource essentially data entry to the "burbs."
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