Demystifying Bookkeeping A Beginners Guide to Accounting Basics
Accounting can be overwhelming, especially to small business owners. This guide demystifies bookkeeping and other accounting concepts without the use of confusing jargon.
From analyzing expenses to understanding earnings statements and cash flow, this guide covers all the essentials of interpreting financial data. Mike Piper simplifies complicated topics such as Generally Accepted Accounting Principles and the accounting equation in an easy-to-read format.
Basics
Bookkeeping is the process of recording financial transactions and storing them in an accounting system. It is a crucial step in the accounting cycle and provides an accurate view of your company’s financial standing. It is essential to know how to correctly record your financial information in order to produce an accurate net income statement, cash flow statement and balance sheet.
Learn the basics of accounting, and start managing your business finances confidently. With this streamlined guide, author Wayne Label introduces core accounting principles in simple terms—from the intricacies of debits and credits to creating and interpreting financial statements. This easy-to-understand primer will enable you to make informed financial decisions and steer your company towards profitability. Designed with small business owners in mind, this QuickStart guide will improve your holistic financial literacy.
Chart of Accounts
A chart of accounts is an accounting framework that organizes financial transactions into basic categories like assets, liabilities, equity, revenue and expenses. Each account is assigned a number for easy identification and used in conjunction with the general ledger to produce financial statements like the balance sheet and income statement.
A good best practice is to keep the numbering consistent from one account to the next, making it easier for stakeholders to compare results over a period of time. It’s also common to list the accounts in the order they appear on a company’s financial statements, with balance sheet items like assets and liabilities listed first and income statement items like revenue and expenses listed next.
A well-organized and accurate chart of accounts allows businesses to get a bird’s eye view of their financial health, attract investors, stay profitable as they scale, and adhere to reporting standards.
Debits and Credits
Whether you are an aspiring bookkeeper or business owner, it is essential to understand debits and credits. Every accounting transaction has both a debit and credit side, and the total of all debits must equal the total of all credits. This principle is called the double entry accounting system and results in each account having a balance.
Debits are recorded on the left side of an account and represent increases in assets or expenses. For example, when your business purchases office supplies, you would debit the expense account for office supplies and credit the accounts payable account (assuming you are paying on credit).
Understanding debits and credits can be intimidating at first glance, but with a little practice, they become second nature. Having a grasp of this foundational concept can help you to make informed financial decisions and steer your business towards profitability.
Income Statement
Often called the profit and loss statement, this important accounting fundamental is a snapshot of business revenue minus business expenses. It goes hand in hand with the balance sheet and cash flow statement to create a complete picture of your business’s financial health.
Using a simple approach, this book introduces readers to the core accounting principles of preparing and reading an income statement. Whether they are new entrepreneurs, stock-market investors or undergraduate or MBA students, readers will gain the knowledge needed to understand these three core financial statements.
Understanding these essential concepts can empower small business owners and others who feel intimidated by the complexities of accounting. From interpreting earnings per share to recognizing and calculating revenue, this book helps readers conquer the fear of finances and make informed decisions.
Balance Sheet
The balance sheet, also known as a statement of financial position, displays a company’s assets, liabilities and owners’ equity at a point in time. Assets are items that provide economic value to the company, such as cash and cash equivalents (checking and savings accounts), marketable securities, prepaid expenses and inventory. Liabilities include short-term debts and long-term loans, such as bank lines of credit and bonds. Owners’ equity includes the owner’s contribution to the business, net of losses and dividend payments.
Accounting can seem daunting for small business owners, but this comprehensive guide demystifies the world of debits and credits in an easy-to-understand format. Discover the tools necessary to master budgeting techniques, financial report analysis and strategies for maximizing small business profitability. The only book you will ever need on the subject of accounting.