Accounting for the Common Business
Accounting for the Common Business
Accounting for the Common BusinessBy: Anthony EadehEver want to know how to account for your own business? With economic struggles throughout most places in the U.S., basic accounting strategies have become more and more important for small companies to know. These strategies not only help managers and owners monitor their business, but also reduce expenses. Here are some of the basic accounting principles that many companies need to know about their business.The first and most basic principle known by most accountants is Assets = Liabilities + Owner's Equity. Asset accounts in companies are anything the company uses or owns with some type of value. Some examples of these accounts are accounts receivable, supplies, cash, and equipment. A liability for a business is something they have yet to pay for or something they owe to another business. Examples of these are accounts payable and rent expense. Owner's equity is what the owner put in the business to get it started. This can be put into the company as cash, or something else the owner invested such as equipment. Owner's equity is important to each company because they find out what their company is worth as well as find out their income whether a loss or gain over the period. In each transaction, some accounts are debited and something is credited for it. When a company goes to check if their accounts are balanced, they make sure all their debits equal their credits. These concepts are extremely important to keep your business running smoothly.Once you have compiled all the accounts and balanced everything, companies usually put this information into different financial statements for easier reading. This also allows the company to look at all the accounts and see what areas need more attention to help the business. The first financial account used is the Balance Sheet. The balance sheet shows all assets, liabilities, and owner's equity in one grouping. A company can do a balance sheet whenever it feels necessary to take a look at these accounts. The balance sheet tallies the assets and then the liabilities and finds a total for each before finding a net income. Once these are accounted for the owner's equity is placed underneath this information.The second financial statement I'm going to talk about is the Income Statement. The income statement shows the company's revenues and expenses. Revenues are what the company does to bring in money, while expenses are costs each company has to pay during certain times. When composing the income statement you list the revenues and total them first. After you list these you put the total cost for sales followed by your gross profit. Finally you list the expenses and total all of them at the bottom of the income statement. The income statement is now complete and the company should have a good idea of where they stand as far as revenues and expenses.The final financial statement used by most companies is the Statement on Cash Flows. This financial statement shows the cash transactions for the period. Any cash received is accounted for as well as any cash paid out. This account is used to see how strong the company may be at any given time. The more cash used the less risk for large debt. It also shows how the company pays out and judges whether payments are made on time. Without this financial statement it is hard to tell if the company has enough capital to pay off its liabilities without putting themselves in debt. The statement of cash flows is made up of operating activities, investing activities, and financing activities. Each category lists what cash they received and what cash was used. Once these are recorded the categories are totaled to find the total amount of cash used during the period. Once these columns are all added and adjusted, the company totals this and finds out where they stand as far as a cash net increase or decrease.That was some of the most basic accounting principles every company should pay attention to. It is important to keep this information up to date and accurate. Without the financial statements up to par it would be hard for a company to stay in business long. I hope this article helped any small businesses get a relative idea of how to account for its company if it was having problems staying in business. If these steps are taken in your business, your chances of succeeding are much greater. Accounting for the Common BusinessBy: Anthony Eadeh How Are You Going To Expand Your Online Business? Why use QuickBooks and Myob for managing a small business? 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