Basic Accounting for Small Business

These are the common mistakes that business owners miss out in the operation of a business.
  1. Cash
When you sell things, you receive cash and pay cash for some purchases. The bookkeeper has to maintain a journal for cash receipts and payments to prepare the monthly accounts.
  1. Accounts Receivable.
Your company might sell goods or services and not collect cash immediately. As a result, you will have receivables. That is the money due to you from your customers who need to be accounted for by sending out invoices.
  1. Inventory
You will have stocks in your company to sell, but that need to be counted and balanced with your records regularly; otherwise, your business will lose money. If you allow it to accumulate without checking records, your money will be doing nothing.
  1. Account payables.
This is a vital part of any business because you will not like to pay more than what you owe to your suppliers, and you should not delay your payments. When you use a proper recording system and make regular payments, you might have some benefits like discounts on your purchases.
  1. Loans payable.
In any business, the owner borrows money for several reasons, maybe to buy equipment, machinery, and other things. You need to keep proper records to know what is owed to the company and what is due when making the payments.
  1. Sales
Sales journals have to be appropriately maintained. Otherwise, you will not know how your business performs and whether you are reaching your target.
  1. Purchases.
A purchase journal will show you how much you have spent for a period as you don’t want to buy more than you need, which will block your money. This account will help you calculate the sales cost to find the gross profit.
  1. Payroll Expenses
It is usually a significant expense in any business. Maintaining this account accurately is crucial as you will not have any issues with the tax office that will put you in serious trouble.
  1. Owners’ equity
This account will show the amount of money the owner has put into the business; the money will be shown in capital accounts, and money taken out of the company will be shown in the drawing accounts. If you have more than one person contributing to the business, it is fair to maintain the owners’ equity accounts properly.
  1. Retained Earnings
This is the business profit after all the expenses are reinvested in the business and not paid to the owners. It gets accumulated over time and will be helpful for the investors and lenders to know how much is there in the accounts and how well the company has been doing. Many entrepreneurs think that accounting is a tedious task and do not like it, but if they take some interest and learn some part of it, they will enjoy it when they know their method to run the business effectively.      
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