For every small business holder, he/she must have some understanding of record keeping and principles. You might hire an accountant that will manage your books such as Amanda Mckenzie BAS Agent Sydney, and you will need to at least have some basic knowledge on how things work and also make sure they have been appropriately processed.
Here are some of the underlying business accounting and principles of bookkeeping defined with simple terms:
- Accounting Methods: Accrual Vs. Cash
In cash accounting, you record income after you receive it and also record after paying expenses. This cash type of accounting will not take into account for any payable or receivable accounts. It will strictly stick to payments from sales or clients once you have received that cash-in-hand or expenses clears out of your bank account.
On the other hand, accrual accounting is different to what cash accounting means. Here, instead of you to record expenses and income, you will file them as you earn income or expense billed. However, it will not take into accounts receivable or payable.
- Bookkeeping Systems: Double-Entry Vs. Single-Entry
The double and single entry in bookkeeping is among the most commonly used methods for small businesses. The personal checkbook will use single-entry method having credits and debts recording as the balances increases or decreases.
However, it will tell you the amount of money in your bank account, but it will not account on where the money is going in the future.
On the other hand, the double-entry will record all your expenses and then account in appropriate categories. Moreover, you will know the much you are spending and especially on particular expenses category for tracking future expenditure.
This method is the most common strategy that accounting software, CPAs and large corporations use.
- Capital: Equity Vs. Debt
The term capital in business finance refers to all the cash that you have in all your accounts and also assets. There are two significant types of money, of which are equity and debt.
The debt will involve the borrowed funds that you are expected to pay from loans or any other financial options. However, equity relates to the selling of interests for a company so that to exchange for money and therefore viewed as an investment in your business.
Liability refers to anything relating to a financial obligation or debt. It will be recorded on the organization’s balance sheet. It will include income taxes, accounts payable, wages and accounts owed.
Profit and loss
Profit and loss is an income statement that summarizes your business income, total costs, and expenses on a specific period. The record will show all the gains earned by the business during that time and also losses incurred, therefore giving a negative or positive figure.
When you understand the necessary vocabularies and principles used in accounting, you will know to manage the books by yourself. When you also combine the knowledge with the best accounting software together with a qualified accountant advisor, then your finance will be taken care of well. When you feel that you are likely to be ready to start dicing into accounting books, check for accounting information to keep yourself updated always. Also, check on various guides about the above accounting methods to learn how to record and customize multiple records.