Bookkeeping. For some business owners, bookkeeping may feel very tedious or challenging to keep up with. For others, this type of financial organization is right up their alley. No matter which mentality you have, all business owners must keep these records in order to plan ahead financially, ensure your costs and profits are accounted for, and to plan for tax season! Read on below for some key terms to know with Bookkeeping!
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1. Cash vs Accounts Receivable
While all business transactions will eventually go through your cash account, they may make some stops first. Cash is usable money within your company, and is the most liquid of all accounts. Accounts receivable is an account for payments that your company may not immediately collect but are owed. Keeping track of your accounts receivable is crucial to ensure invoices are sent timely and you receive funds you're owed.
2. Inventory
Unless you're purely a service business, you most likely have inventory of some sort for your company. Even products sitting on your shelf waiting to be sold must be accounted for. Once you sell your inventory, this will transfer into cost of goods sold, another account that falls under expenses.
3. Accounts Payable
Accounts payable is the opposite of accounts receivable; accounts payable is money you owe that is not immediately expensed. Keeping track of this account is crucial to ensure you're making payments on loans or other items payable in a timely manner.
4. Sales
As you probably guessed, sales are your transactions and where you track revenue. Tracking your revenue helps you calculate your profit and make business decisions for the future.
5. Purchases
Once again, this particularly pertains to business owners who keep inventory or need specialty equipment to run their business. However, purchases also includes purchase of computers, software, and other vital items you buy for your business to run. This is also a necessity for when you calculate your cost of goods sold.
6. Payroll Expenses
We will get into more detail on this topic in a future blog (and even MORE detail in our upcoming workshop!). Your payroll expenses are more often than not the biggest cost for businesses. This account is especially important for taxes and in case of an audit.
7. Owners' Equity
This account is often large and encompasses many sub-accounts such as stock, retained earnings, assets, and liabilities. This account is often what shareholders are particularly interested in because it gives a good snapshot of how your company is doing over time.
8. Retained Earnings
This account is a particularly important part of owners equity. Retained earning are your revenue minus your costs. This is another account that shareholders pay particular attention to.
If you have any questions, feel free to contact us at Practical Accounting Solutions! We also offer bookkeeping services to help eliminate your stress so you can focus on your business!
We are proud to announce a three-week workshop in may called "finance Fundamentals for your Small Business" presented by Practical Accounting Solutions! Click Here for more information!
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