Accounting 101: Basics Small Business Owners Must Know

This guide includes accounting definitions, alternative word uses, explanations of related terms, and the importance of particular words or concepts to the accounting profession as a whole. Similar to other processes and strategies across your business, you’ll want to constantly review and evaluate your accounting methods. You should always have a controlled process in place for your business accounting — because, as you’ve learned throughout the above sections, it’s an absolutely critical aspect of your company’s overall health. Liabilities are everything that your company owes in the long or short term. Your liabilities could include a credit card balance, payroll, taxes, or a loan. These tools are how most small businesses manage their accounting. Automation tools save businesses and accountants time by limiting the amount of time they spend on data entry.

Their bookkeeper purposefully omitted that the business has not yet paid its previous loan with Bank XY. Identify the principle or assumption that was violated in each of the transactions below.

Course Topics

Accountants analyze and advise business leaders about what to do with that data. They prepare reports and audits to communicate and present financial data. These insights help businesses prepare for unexpected shifts that happen as a business grows. Accounting is the process of systematically recording, analyzing, and interpreting your business’s financial information.

The Financial Accounting Standards Board established the GAAP to uphold quality standards for accounting activities. The cost of goods sold or cost of sales is the cost of producing your product or delivering your service. There are many other technical and soft skills that this role uses on a daily basis to make sure a business is financially healthy. But before we dig into those ideas, let’s talk about what day-to-day work looks like for an accountant.

Generally Accepted Accounting Principles

You’ll only have one account to monitor for bookkeeping and tax purposes, and your personal income and expenses won’t get entangled with your business ones. Believe me — only having to look at one set of bank statements is a lifesaver during tax season. Many businesses operate out of a cash account – or a business bank account that holds liquid assets for the business.

These entries can both either increase or decrease an account balance, depending on the type of account. Businesses must account for overhead carefully, as it has a significant impact on price-point decisions regarding a company’s products and services. A liability occurs when an individual or business owes money to another person or organization. Bank loans and credit card debts are common examples of liabilities.

Assets

Under the principle of consistency, accountants must clearly state any changes in financial data on financial statements. This course is essential for any employee or manager whose job is impacted by what their company buys, sells, or profits from–which pretty much means everyone. Improving a company’s bottom line requires knowledge of accounting. This course will provide all the information you need to understand the fundamentals of accounting basics accounting and bookkeeping so you can help keep your company afloat financially. The preparation of the financial statements is the seventh step in the 9-step accounting cycle. However, we decided to present this first before getting into the whole process for you to have a picture of what we are trying to produce in an accounting system. A trial balance is a report of the balances of all general ledger accounts at a point in time.