Basic Bookkeeping 101
September 11th 2006 11:59
As a small business owner you need to know your worth at every corner. Accountants are great for giving you your bottom line; however the paperwork flutters entirely into your filing cabinet. It’s also important that you understand the accounting fundamentals so that you can interpret the reports given to you by your accountant. So here’s a very brief overview (if you’d like further information send me a message or post a comment).
1) Your business will make income by:
• the sale of products or services
• the sale of any assets held by the business
• provision of a bank loan
• capital or money invested in the business by yourself
2) Your business will make payments for:
• expenses incurred in the running of the business (e.g. bills, suppliers etc)
• expenses incurred by purchasing new assets or repairing/maintaining old ones
• payments to yourself (called drawings)
3) It is a taxation requirement that any records pertaining to any of the above transactions (indeed, anything affecting the cash flow of the business) need to be kept for a minimum of five years.
4) You will need to have an organized filing system set up to ensure that paperwork does not get misplaced. Keep documents relating to the same business transaction together.
5) It’s important that your accountant, or a tax auditor can walk into your business and understand your accounting system.
6) You can choose a paper recording system or computerized recording system for your business. There are advantages and disadvantages to both so choose whichever suits your business. Check out the Australian Taxation Office’s ‘e-Record’, a basic, easy to use business recording tool.
Here are some basic definitions of common accounting terms.
ASSET – anything owned by the business of value (e.g. cash in the bank, a motor vehicle, shop fittings, money owed to you by customers)
LIABILITY – anything owed by the business (e.g. bank overdraft, money owed to suppliers, motor vehicle loan)
EXPENSE – any cost incurred in running the business (e.g. purchase of goods, payment of electricity, freight costs, wages)
REVENUE – any monies made by the business (e.g. sale of goods or services, rental income, interest earned)
CAPITAL – money invested into the business by the owner
DRAWINGS – money taken out of the business by the owner
Check back for further posts on maintaining good accounting records and how to understand your accounting records.
• the sale of products or services
• the sale of any assets held by the business
• provision of a bank loan
• capital or money invested in the business by yourself
2) Your business will make payments for:
• expenses incurred in the running of the business (e.g. bills, suppliers etc)
• expenses incurred by purchasing new assets or repairing/maintaining old ones
• payments to yourself (called drawings)
3) It is a taxation requirement that any records pertaining to any of the above transactions (indeed, anything affecting the cash flow of the business) need to be kept for a minimum of five years.
4) You will need to have an organized filing system set up to ensure that paperwork does not get misplaced. Keep documents relating to the same business transaction together.
5) It’s important that your accountant, or a tax auditor can walk into your business and understand your accounting system.
Here are some basic definitions of common accounting terms.
ASSET – anything owned by the business of value (e.g. cash in the bank, a motor vehicle, shop fittings, money owed to you by customers)
LIABILITY – anything owed by the business (e.g. bank overdraft, money owed to suppliers, motor vehicle loan)
EXPENSE – any cost incurred in running the business (e.g. purchase of goods, payment of electricity, freight costs, wages)
REVENUE – any monies made by the business (e.g. sale of goods or services, rental income, interest earned)
CAPITAL – money invested into the business by the owner
DRAWINGS – money taken out of the business by the owner
Check back for further posts on maintaining good accounting records and how to understand your accounting records.
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