Writing the book on bookkeeping

'Being deft at digital marketing isn't enough...'

Millions of small-business owners and startup entrepreneurs are masters at creating great products and services, building awesome teams and winning over customers. Many of them, however, would probably flunk basic bookkeeping. More

To continue reading this article, please do one of the following.



ADVICE

Writing the book on bookkeeping

'Being deft at digital marketing isn't enough...'

Posted 4/9/12

Millions of small-business owners and startup entrepreneurs are masters at creating great products and services, building awesome teams and winning over customers. Many of them, however, would probably flunk basic bookkeeping.

But if you – the business owner – don’t understand the different types of “accounts” your bookkeeper uses to organize your finances, measuring the success (or failure) of your efforts will be futile. Being deft at digital marketing, for example, isn’t enough if you don’t have a clear financial picture of your business and run headlong into cash flow problems.

What do your accounts receivable look like? Are you constantly paying your own bills late? Not sweating the small stuff like understanding your own books is trouble in the making, says Lita Epstein, who designs online courses about reading financial reports and is the author of “Bookkeeping Kit for Dummies.”

Here are basics of the some common types of bookkeeping accounts for a small business that you should know:

• Cash. It doesn’t get more basic than this. All of your business transactions pass through the cash account, which is so important that often bookkeepers actually use two journals – cash receipts and cash disbursements – to track the activity.

• Accounts Payable. No one likes to send money out of the business. But it’s a little less painful if you have a clear view of everything via your Accounts Payable. Good bookkeeping helps assure timely payments and – importantly – that you don’t pay anyone twice. Paying bills early can also qualify your business for discounts.

• Loans Payable. If you’ve borrowed money to buy equipment, vehicles, furniture or other items for your business, this is the account that tracks what’s owed and what’s due.

• Sales. The sales account is where you track all incoming revenue from what you sell. Recording sales in a timely and accurate manner is critical to knowing where your business stands.

• Purchases. The purchases account is where you track any raw materials or finished goods that you buy for your business. It’s a key component of calculating “Cost of Goods Sold” (COGS), which you subtract from sales to find your company’s gross profit.

••Owners’ Equity. This account has a nice ring to it. Basically, it tracks the amount each owner puts into the business. “Many small businesses are owned by one person or a group of partners; they’re not incorporated, so no stock shares exist to divide up ownership,” said Epstein. •• Payroll Expenses. This is the biggest cost of all for many businesses. No matter how much you beg, few people want to work for nothing. Keeping this account accurate and up to date is essential for meeting tax and other government reporting requirements. Shirking those responsibilities will put you in serious hot water. •


Daniel Kehrer can be reached at

editor@bizbest.com.

Calendar
PBN Hosted
Events

Join PBN and two panels of successful female executives, business owners and entrepreneurs as we delve into what women should do to advance their careers, and become leaders in the corporate world and their own enterprises.
  • Book of Lists Party
    Save the date - January 15, 2015 for PBN's Book of Lists Party at the Providence ...
  • Best Places to Work
    Enrollment is now open for the 7th annual Best Places to Work program. Winners w ...
Advertisement
Purchase Data
Book of Lists
Lists
Book of Lists cover
PBN's annual Book of Lists has been an essential resource for the local business community for almost 30 years. The Book of Lists features a wealth of company rankings from a variety of fields and industries, including banking, health care, real estate, law, hospitality, education, not-for-profits, technology and many more.
Data icons
Data can be purchased as single lists, in either Excel or PDF format; the entire database of the published book, in Excel format; or a printed copy of the Book of Lists.
  • Purchase an e-File of a single list
  •  
  • Purchase an e-File of the entire Book of Lists database
  •  
  • Purchase a printed copy of the Book of Lists
  •  
    National
    Local
    Latest News
    Advertisement