Accounting Small Business USA

Business owners, whether they do their own small business accounting or use outsourced bookkeeping, should have a basic understanding of bookkeeping basics. To state it in very simple terms, bookkeeping is the recording of your company's income (receipts) and expenses (payments) into a set of account books.

What is a double entry system?

Double entry is to enter transactions twice into your bookkeeping system. All this data is entered as a Debit or as a Credit. For example, if you make a $20 cash sale, you would debit that cash (or bank account) and credit the sales account with the $20. So when you prepare your trial balance in your small business accounting system, your cash account balance would have a debit balance of $20 and your sales account balance would have a credit balance of $20, meaning your trial balance ledger balances. A double entry system is a system of checks and balances.

Do I debit or credit?

All you have to remember is that the "D" in debit also stands for the "D" in deposits. So when you receive that payment of $20 for a cash sale, you would of course deposit it or debit the bank account in your small business accounting system. And since it is a sale, you would credit the sales account.

How does this apply to a cash purchase?

When you purchase or spend money on something, the value coming in would be the item itself, since cash is going out. You would, therefore, debit (deposit) the item's account and credit (take away from) the cash account. So, the basic bookkeeping rule is that any "value" coming in is to be debited and the corresponding account is to be credited.

What is a trial balance?

A trial balance is a list of all the balances from your small business accounting ledgers, which are the debit and credit balances. The debits and credits in the trial balance must equal each other. Any differences in these balances means that your double entry bookkeeping is incorrect and has to be corrected before the other final accounts can be prepared.

What is an income statement?

The income statement, also known as the profit and loss statement (P&L), is basically a statement that shows how well a company buys and sells inventory (or services) to make a profit. You calculate your gross profit by how much sales you have made, and then subtract your purchases and other expenses which are directly connected with your sales. After determining your gross profit, you would then deduct it from your administrative and other expenses to calculate your net profit or net loss for the year.

What is a balance sheet?

The balance sheet for your small business accounting system is used to get a snapshot of your company's current financial position by listing all the current and fixed assets, the current and long-term liabilities, the shareholdings and capital, and the profit or loss for the year. This essential bookkeeping tool will reflect what is known as your company's net worth. A positive net worth means that your company has more assets than liabilities, and a negative net worth means that your company has more liabilities than assets.

If you need some help, the folks at ReliableFinancials.Com can put you together with an accountant or bookkeeper to answer your questions. They offer a free research service to US small businesses looking for bookkeepers and accountants. Contact www.ReliableFinancials.Com.

About The Author

Reliable Financials is a small team of professionals that can put your small business financials in order quickly and efficiently. Even if you need catch-up work, Reliable Financials can efficiently organize your small business accounting. Our rates start at $99/month for books that have 25 transactions or less. Our norm is larger accounts, and we engage in helping you with payroll, tax preparation, even financial modeling.

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