Small Business Accounting

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Most entrepreneurs dread small business accounting because they think it's too hard. Once you study it though, it's actually easier than you think. It's also important because doing without it is like playing a basketball game without knowing the score: if you adapt too late, you'll fail. Here are the principles of accounting. Keep Sound Records It's important to know your scores. It's equally important to know you're looking at the right data. Relevant and timely material will tell you if you're gaining or losing profits, provide good decision-making, and help you budget accordingly. Importantly, it will help is distributing profits. Employees love rewards for their hard work, and knowing how the bottom line improved will guide you in rewarding them. You will also need to know relevant profits to distribute the dividends to you and your investors. Go with an Automated System Most established businesses today keep their records manually. Fortunately for you, there's a much better, quicker, and more accurate method. Though you could go with industry-specific software, a general accounting software for most small businesses is fine. To learn more, go read about small business book keeping software. How Accounting is Recorded The accounting system goes through a five stage process: (1) business transaction, (2) journal entry, (3) general ledger, (4) trial balance, and (5) financial statements. The following describes each step. Business Transaction All entries start out as business transactions (e.g. receipt, check). Journal Entry We record each business transaction onto a journal entry as they occur. General Ledger All journal entries at the end of an accounting period are then grouped onto a general ledger by their type (i.e. credits or debits). Trial Balance We then ensure the general ledger has equal sides of credits and debits. If it's not, we'll find out the errors involved. Financial Statements We then make a financial statement from data in our trial balance. As you can see, it's a simple process. Don't avoid small business accounting like most entrepreners. If you understand it fully, you'll have a great advantage on your competitors. Learn more about the topic by returning to the finance section.

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Posted on February 18

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