Accounting is a key strategic and operational management tool in any business. Whether you’re starting a new company, running a business already established or managing an existing one, accounting is always required to keep track of your income and expenses.
As a business owner, you probably feel like you already know all the basics of accounting, but we can guarantee that you don’t because it’s not enough to know just about the 3 golden rules of accounting. You can visit Khatabook to learn about these rules in detail. However, if you don’t feel like studying it, It’s understandable to feel this way because it can be overwhelming when looking at it from start to finish. So let’s make sure we have a solid foundation by introducing some basic accounting concepts and processes that you should follow:
- TRACK YOUR INCOME & EXPENSES
Income Statement: A report that shows the amount of money made during a specific period, such as one month or one year. The income statement shows your revenue, which is the amount of money you received from selling your products or services, and expenses, which is the amount you spent on things like salaries and rent.
Expense Statement: A report that shows how much money was spent during a specific period, such as one month or one year. The expense statement shows how much money was paid out in salaries, rent, supplies and other costs.
- TRACK YOUR ASSETS, LIABILITIES, AND EQUITY
Balance Sheet: A report that shows an organization’s financial condition at a specific point in time; it includes assets (what the company owns) and liabilities (what it owes). It also shows equity (the difference between assets and liabilities), which is an indication of how much money there is left over after all debts are paid off.
These reports will also help you understand the difference between cost accounting and financial accounting.
- SAVE FOR TAXES
The first step in accounting is to save for taxes, which you can do by making estimated tax payments during the year. This will ensure that you have enough money to pay your taxes at the end of the year. You may also want to consult a tax professional so that they can help you determine how much you should be paying in taxes and what deductions are available to help lower your tax bill.
- HAVE SEPARATE BANK/CREDIT CARD ACCOUNTS UNDER THE COMPANY NAME
You will need two bank accounts: one for business expenses and another for personal expenses. There are many reasons why it’s best to set up separate financial accounts for each purpose:
– Separate accounts allow for better tracking of expenses, which helps with recordkeeping and reporting;
– Separate accounts help prevent fraud or misconduct from occurring on either account;
– Separate accounts make it easier for employees who work for both business and personal expenses;
– Separate accounts help identify possible issues with income tax returns if there are discrepancies between business and personal expenses.