Learn The Amazing Basics of Bookkeeping Now

Disclaimer

Here on Selfmadesns.com I’m only giving you my life experiences. So, you may learn and benefit from my mistakes along the way. As well as learn from all of the good decisions I made. What may work for me in some different experiences is not always what you should be doing on your own. Always do your own research or speak with a professional on the subject. Better yet do both guys. It will be way more beneficial for you at the end of the day. If you want more information on our terms, please visit our terms and conditions page along with the privacy policy page as well.

When someone finally decides to start a business. They usually just think about getting the business up and running, providing their best possible products and services for their customers and reaching their customers. Maybe a few other things might come to mind but, how many times do you hear about anyone talking the importance of bookkeeping my friends? Well today we will be going over the basics for you guys. At the end I’ll give you my reasoning for it being so important. Let’s jump into this post right now.

Understanding Financial Statements

Now how far do you think your business will go if you don’t understand your financial statements? You need to know what you are looking at and what to look for. One of them financial statement will be a balance sheet, this will let you know how the company is doing financially whenever you look at them. Some like to look at them every day, weekly, monthly, or quarterly. I wouldn’t go pass quarterly but I prefer to look at mine monthly. Things you should see on that balance sheet is the company’s assets, liabilities, and equity. Your income statement is also a part of your financial statements. This will show you the company’s revenues and expenses. giving you the company’s profit and loss for a period of time. The cash flow statement is pretty simple. This will show you all the cash going out and coming in.

Key Terms

Now if you are wanting to open a business you should know all these terms. But just incases you don’t I got you. Now you can look up each one of these on your own, I will be giving you my definition of each. Let’s start with Assets, these are things that’s bringing in cash. For example, cash, inventory, and equipment. Next, we have Liabilities, these are the things that’s taking away from your profit. For example, loans, bills, and any accounts payable. Now we have Revenue, this is all the money your business is bring in. This one doesn’t really need an example. Lastly, we have Expenses, these are the things you have to pay for to keep making money. For example, inventory, payroll, and rent. Make sure you know these.

The Double-Entry System

First term we have in this one is Principle. Every one of your business transactions will affect at least two of the accounts, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced my friends. Now let’s talk about Debits and Credits. Debits will increase the assets or expense accounts while at the same time decrease liability, equity, or the revenue accounts. On the other hand, the Credits do just the opposite.

The Basic Transactions

Now there are four basic transaction you need to know. First one is Sales Invoices, this will be a recording of any sales the business make on credit. Next, we have on the list is Purchase Invoices, these are recording of any purchases made on credit. Now we have Receipts my friends. These are recordings of any money received. Lastly on this list is Payments. This one is recording of any money paid out. And that’s it for this part guys.

Journals and Ledgers

In the journal part of this will be initial recording of any business transactions that state the accounts affected, amounts, and a good description as well. In the Ledger you will keep track of all accounts where journal entries are posted. Each one of them account tracks specific categories of transactions.

Chart of Accounts

This will just be a good, structured list of all the business accounts used in the company’s accounting system. The accounts should be categorized as assets, liabilities, equity, revenue, and expenses.

Trial Balance

This is a report that will list all of the balances in the general ledger accounts. It’s also used to help verify that total debits equal total credits as well. See how that’s all wrapped up in each other. That’s why it will be important to make sure your records are correct.

Adjusting Entries

In this part all the entries made at the end of the accounting period chance to update any account balances before preparing the financial statements. Examples of this will include accruals and deferrals.

Financial Reporting

Preparing Financial Statements is a summary of all the company’s data from its general ledger put into reports like the balance sheet, income statement, and cash flow statement. While the Analysis will be reviewing and analyzing all the company’s financial reports to understand the financial health of the business. While also looking at performance of the business as well.

Technology and Software

Now if all this has you thinking about how you going to keep all this number in your head, don’t worry. There is technology and software out there that will handle most of this for you. There’s accounting software (e.g., QuickBooks, Xero) that will automate and simplify bookkeeping tasks for you, that will improve accuracy, and generate financial reports easily as well.

Summary

Bookkeeping is so important for a business because it really show you how your business is progressing. You can look at it and see if you have too much money going out and not enough coming in. Now you are able to make adjustments to get your business right. Know all this is best so no one can’t just come in and tell you anything. Now you can look over the paperwork and see it for yourself. Also, make sure all of your financial records comply with relevant laws, regulations, and accounting standards (e.g., GAAP or IFRS) as well my friends. But that’s it for this one. Thanks once again for your time