Accounting Basics 02. Debits and Credits 03. Chart of Accounts 04. Bookkeeping 05. Accounting Equation 06. Accounting Principles 07. Financial Accounting 08. Adjusting Entries 09. Financial Statements 10. Balance Sheet 11. Working Capital and Liquidity 12. Income Statement 13. Cash Flow Statement 14. Financial Ratios 15. Introduction to Accounting: Summary This is a summary of the topics discussed in Introduction to Accounting under Accounting 101: The Basics tutorial series. You can always check the full lessons out anytime.

Here at The Accounting Path, we know that the core concepts of an accounting degree can come at you fast. To help out, we’ve pulled together a series of articles on Accounting 101 basics and also provide an Accounting 101 quiz for major topics.Whether you are a first time student, someone who already has a bachelor’s degree in accounting, or just want to refresh your old knowledge, we have come great accounting 101 guides for you.If you’re starting fresh, we recommend beginning with our Accounting 101 quiz on Financial Accounting and then taking a look at our questions on Managerial Accounting. These two topics are commonly covered by first year accounting students and will provide you with a test on Accounting 101 basics. Included in our quizzes are important learning notes that will help you understand the key concepts needed for any first year accounting course.For those looking to go deeper, we’ve also compiled a few great summaries of,. These are some of the most important concepts for any accounting program and it’s critical that you understand them to move forward in the world of accounting.We’ll continue to write new quizzes and provide additional Accounting 101 basics article, so check out our blog links below and follow us on Twitter to find the Accounting 101 topic that interests you.Want to learn more? Head over to our learning and and see our recommended short courses and books.

These resources will help you brush up on your accounting 101 knowledge.

You’ve done it. You’ve come up with a business idea, you’ve drafted your business plan, and you’ve started estimating costs and to get your small business off the ground.Or maybe you’re further along in the process. You’ve launched your business, and you’re working hard to ensure it’s a success. Good for you!But wait are you sure you’ve thought about all the key components of running a profitable business? For example, have you thought about how you’re going to do the accounting for your new business? If your doors are already open, do you have an accounting system in place?If your answer is no, this article is for you.

While it’s important to, shop around for vendors and suppliers, and deliver exceptional products or services to customers, few things are more important than accounting for your business. Without good accounting, you’re putting your business at risk of failure by not keeping a close watch on your financials.As a new business owner, you already have a lot of expenses that can pile up quickly. Adding an accountant to the mix just isn’t feasible for most businesses in their beginning stages. Fortunately, there are options available that make accounting simple and are.

In this post, we’re going to talk about small business accounting. We’ll start off with the basics, then take a step-by-step look at how to use accounting in your business. We’ll explore accounting software options, the financial statements your business needs, and the that can save you money come tax time.Whether you’re a new business owner or haven’t gotten off the ground yet, whether you know a little about accounting or you’re completely in the dark, you’re in the right place. Welcome to Accounting 101. Table of Contents.What Is Accounting?Merriam-Webster defines accounting as:The system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results.In other words, accounting is a process used by business owners and entrepreneurs to keep track of the financial transactions of a business, from purchasing supplies and inventory to the revenue that the business makes. Accounting allows you to analyze the financial health of your business to determine where money is being spent, how money is being made, and how these numbers affect the business. The Basics Of AccountingWhether you’ve dabbled in accounting in the past or you’re brand new to it, every business owner should have an understanding of the basics of accounting.

These concepts may be very new to you or seem confusing at first. However, take the time to learn them so that you can tackle your company’s finances head-on and reap the benefits of good accounting.

The Accounting EquationWe can’t discuss the fundamentals of accounting without first discussing the accounting equation. Knowing and understanding this principle is essential for double-entry accounting, which we’ll discuss a little later. For now, though, let’s familiarize ourselves with this basic equation.The accounting equation states that: Assets=Liabilities+Owner’s EquityNow, let’s break down each of these terms to ensure that you have a full understanding of the accounting equation. Assets: Assets are everything that your business owns. This includes the cash in your business bank accounts, commercial real estate, equipment, inventory, and accounts receivable. Liabilities: Liabilities include everything that your business owes. This includes accounts payable, loans, and other debts.

Owner’s Equity: Owner’s Equity (also known as shareholder’s capital) includes all investments of capital by the owners of the business.The accounting equation keeps everything in balance. Each side must be balanced. If each side isn’t balanced, there is an error that must be found and corrected. The Importance Of Double-Entry AccountingMany businesses use what is known as. Double-entry accounting simply means that transactions are recorded to two or more accounts.

This system of accounting provides more accuracy and helps keep your books balanced. The accounting equation we discussed earlier is the foundation of double-entry accounting.Double-entry accounting gives you a better view of your business finances.

Single-entry accounting only uses income and expenses, whereas liabilities and assets are recorded using double-entry accounting. Not only does double-entry accounting give you a better understanding of the net worth of your business, but it offers additional benefits. Double-entry accounting makes it easier to spot errors and also comes in handy when it’s time to run financial reports.This is a very basic overview of double-entry accounting. To learn more about how it works and why your business should use double-entry accounting, check out our post, Debits & CreditsIn double-entry accounting, transactions are recorded as debits or credits.You’re probably already familiar with debits and credits if you use a debit card from your bank or a credit card. That said, you’ll need to forget everything you think you know when learning accounting, because these concepts are completely different.If this sounds like a foreign language to you, don’t worry. Let’s break it down so it’s easier to understand. Debits: A debit increases assets and expenses and decreases liabilities.

Credits: A credit decreases assets and expenses and increases liabilities.Total debits must equal total credits or there is an error that needs to be found and corrected. Remember, it’s all about balance.Let’s take a look at an example. Say your business has purchased a piece of equipment at a cost of $15,000. You borrowed the money to purchase the equipment. Because you gained an asset, this is recorded as a debit of $15,000. However, you have to pay back the money you borrowed, which creates a liability. Therefore, you will record a credit of $15,000 under accounts payable (liabilities). AccountDebitsCreditsEquipment15,000Accounts Payable15,000Totals Debits = $15,000 Total Credits = $15,000 ✔Both sides are equal and balanced.Debits and credits are not used in single-entry accounting.

While it may seem easier to simply skip this and forego double-entry accounting, remember the benefits that we discussed earlier. Using double-entry accounting gives your business a clearer, more complete view of your finances. And before you get too worried, most handles the double-entry accounting for you behind the scenes, so you won’t have to do everything manually.Ultimately, understanding these concepts may be difficult, but you’ll find that the benefits of balanced books are well worth the effort.

Journal EntriesAn important piece of the accounting pie is the general journal. This is where all business transactions are recorded in order by date. Each journal entry should include four things. Those are:.

The date of the transaction. The account(s) and amount(s) credited. The account(s) and amount(s) debited.

A memo describing the transactionWhen recording a journal entry, debits are recorded in the left column, while credits are recorded in the right column. Each side will be balanced, meaning that the total amount of debits on the left should equal the total credits on the right.

Let’s look at a quick example.You purchase $500 worth of inventory for your business. This inventory was purchased with cash. You have inventory (an asset) in your possession, so $500 is recorded in the left column of the journal since this is a debit. Because you paid with cash, your cash account is decreased by $500. Therefore, a credit in the amount of $500 is posted in the right column.The Chart Of AccountsAnother key accounting concept to remember is the. A chart of accounts lets you see exactly where your company’s money is going.

While it may seem confusing initially, understanding how a chart of accounts is organized helps the numbers make sense.While we won’t dive too deeply into this concept, you should walk away from this article with a basic understanding of what a chart of accounts is. Typically, a chart of accounts is divided into five sections: assets, liabilities, equity, income, and expenses. These categories are further divided into accounts, such as utilities, advertising, accounts payable, cash, and materials and supplies.Here’s an example of what a chart of accounts looks like:Your chart of accounts is important for a number of reasons. In addition to breaking down your expenses, your chart of accounts helps you have a clear picture of where your money is going to and coming from. Your chart of accounts also helps you track inventory and can be extremely beneficial come tax time. If you remember our journal entry example from earlier we spent $500 cash on inventory, you’ll see this reflected in the chart of accounts above where the “cash on hands” account reads -$500.To learn more about this accounting concept, check out our post,.Now, let’s pause, take a breath, and let all of this information sink in. Understanding these concepts and key accounting terms certainly helps you dive into your company’s accounting with more confidence.

Rest assured, however, that you don’t have to know everything about accounting to balance your own books. Gone are the old days of paper journals and ledgers and manually writing down every transaction. Today, there are lots of available. While you do have to learn how to use your chosen software and may still have to do some tasks manually, accounting software does a lot of the heavy lifting for you, from automatically posting transactions from your business bank accounts to calculating depreciation on assets to sending out recurring invoices. How To Do Small Business AccountingWith an understanding of basic accounting concepts under your belt, it’s time to put that knowledge into practice.

From the first steps you need to take before launching your business to picking the right software for your business to hiring an accountant, we’ll cover it all in this section. Set Up Your Business EntityBefore you start your business, you must set up your business entity.

This determines your and influences how you file and pay taxes, your personal liability for the debts and liabilities of the business, how you can raise money for your business, and various requirements that your business must meet. Consider the needs of your business and future goals when selecting your legal structure. The main business entities include:. Sole Proprietorships: A sole proprietorship is an unincorporated business that is owned and operated by one person. This is the easiest entity to set up and does not require formal registration.

Business profits or losses are reported on the owner’s personal income tax return. A sole proprietor is held liable for the debts and obligations of the business. Partnerships: Partnerships are legal structures for businesses with two or more owners. Formal registration is not required to form a partnership, although there should be an agreement between partners.

Business profits and losses are passed through to the owners and filed on their personal income tax returns. The owners in a partnership may be responsible for the debts and obligations of the business based upon the type of partnership that has been formed.

Corporations: Corporations are the most expensive and complicated of all legal entities. Corporations have regulations that other legal structures don’t have, such as establishing bylaws and holding meetings. Corporations may also be subject to corporate tax rates and may face double taxation. However, there is limited liability on the owners, and corporations also have more opportunities for raising large amounts of capital through the sale of stock. Limited Liability Company: A limited liability company (or LLC) combines the benefits of multiple entities.

Owners of LLCs have limited liability, so personal assets aren’t at risk if the business goes under. The owners of the LLC can also determine how business revenue is taxed.Check out our post, to learn more about the different business entities, and consider speaking to an attorney to determine which choice is best for your business.In addition to setting up your business entity, there are a few other steps you need to take in these early stages. The first is selecting a name for your business.

As a sole proprietor, you aren’t required to register your business if you’re using your own name. However, some small business owners opt to file a Doing Business As, or DBA.

A DBA is a fictitious name that is registered with the county or state where the business will operate. If you select another legal structure, such as an LLC or corporation, you’ll register your business name when you file other paperwork with state and local authorities.The next step is obtaining any licenses and permits required to legally operate your business. Your local chamber of commerce or can help you find out what your business needs and how to obtain these licenses and permits.If you plan to hire employees for your business, you will need to obtain an. This is available at no cost by registering with the.Other steps that you may need to take before opening your business may include, hiring employees, buying or leasing commercial space, and advertising your business to bring in customers. Open A Business Bank AccountWhen you start your own business, you need a business bank account. This should always be one of the first steps you take before launching your business. However, if you’ve already gotten your business off the ground and don’t have a separate account, it isn’t too late to head to your local branch to open a business account.There are a few reasons why opening a separate bank account is so important for your business.

First of all, it simplifies bookkeeping and filing taxes. You won’t have to pick apart every transaction to determine which ones were personal and which were for business purposes.Speaking of taxes, keeping a separate business bank account could prove to be extremely helpful in the event that you’re audited by the IRS. Sloppy bookkeeping and jumbled expenses could very easily turn a simple audit into a drawn-out nightmare.Finally, if you plan to apply for any type of business funding, such as or, a lender typically only deposits funds into a business bank account.

By opening a business bank account, you also establish a relationship with a bank, which could provide you with low-interest funding further down the road. Choose Your Accounting MethodNow, if accounting didn’t seem confusing enough, we’re about to throw another curveball your way. There are actually two different methods of accounting.

Before you get frustrated, though, just know that the two types are very easy to understand and differentiate from each other.The first (and most common) method is accrual accounting. Accrual accounting recognizes revenue and expenses or sales or bills are incurred, not when the cash switches hands. With this type of accounting, accounts payable and accounts receivable are recorded.

Accounts Payable: Expenses that you owe but haven’t yet paid (think bills). Accounts Receivable: Revenue that your customers owe but haven’t yet paid (think invoices).Let’s take a look at an easy example.

Let’s say that you’ve received $5,000 in payments from your customers and $1,000 in outstanding invoices. You also have paid bills totaling $500 and $100 in unpaid bills.Using the accrual method, your total profit for this time period would be $5,400. You would add the revenue you have received ($5,000) plus your accounts receivable ($1,000). Then, you would subtract your expenses ($500) and your accounts payable ($100) because your accounts receivable (unpaid invoices) and accounts payable (unpaid bills) are already recognized as part of your profit/loss.The benefit of using the accrual accounting method is that it gives you a clear view of your income and expenses. On the flip side, though, it doesn’t give you a clear picture of the cash flow of your business. While your books may show that you have earned a bigger profit, you might not have as much available cash because of unpaid invoices.The other method that you may use for your business is cash basis accounting (or simply cash accounting).

Cash basis accounting recognizes revenue and expenses when cash changes hands. This method does not use accounts receivable or accounts payable. Instead, only revenue that has been received and expenses that have been paid are calculated.Let’s go back to the previous example. Remember, we have $5,000 in revenue, $1,000 that we haven’t yet received, $500 in expenses, and $100 that we owe. Using the cash method, your total profit would be $4,500. You would simply subtract your expenses that have been paid ($500) from the revenue that your business has received ($5,000) because cash basis accounting does not include your accounts receivable (unpaid invoices) or accounts payable (unpaid bills).The benefit of using the cash basis accounting method is that you can more easily track your cash flow at any time.

However, you won’t get the longer-term overview of your revenue and expenses through the accrual method and most accountants do not recommend this form of accounting.There are some other differences between the two methods of accounting, such as how income is reported for tax purposes, but this is just a basic overview. If you want to learn more to help you decide which method is right for your business, check out our post, Cash VS Accrual Method: Which Is Better For Your Business? Find The Right Accounting SoftwareOur modern, tech-filled world makes it easier than ever to operate a business. This includes that eliminates the tedious tack of paper accounting. While this software doesn’t do all the work for you, it does keep your financial information organized in one spot, automates some tasks, and simplifies the accounting process. In other words, you don’t have to have a degree in accounting to do your own books if you have the right accounting software.

If you don’t have the funds to hire a bookkeeper or accountant for your business (and most new businesses don’t), accounting software is a cost-effective way to keep your finances on track.So, how do you know which software is best for your business? There are a few considerations to keep in mind:. Price: Before searching for accounting software, have a budget in mind. What can your business comfortably afford?

In some cases, you may not be able to afford anything — and that’s okay! There is available. However, free software may come with lots of ads, fewer features, or allow for no more than one user.

If you have complex accounting needs, multiple users, or have other specific needs, there are. Dream pinball 3d. Features: Consider the needs of your business when choosing accounting software. If you’re running a larger business, for example, or need software specific to your industry, free software with basic features won’t be a good fit. You may want the whole gambit: invoicing, contact management, accounts, payable, time tracking, project management, and more. However, if you run a smaller business, have only a few clients, and don’t need a ton of added features, a basic and is a good choice. Online & Offline Options: Most business owners and entrepreneurs these days use. There are many benefits, including no installations required, automatic updates, integration with apps, and access from multiple devices, such as your smartphone.

However, there are also that may work for you, such as in locations that don’t have fast and reliable internet connections. Your Accounting Skills: Before choosing accounting software, keep in mind your accounting skills.

If you’re new to the game, look for software designed with the beginner in mind that offers an easy-to-use interface and has great customer service. If you have some experience in accounting, you can certainly dive right into one of the more complex programs. Add-Ons: Some accounting software offers additional add-ons for an extra fee., for example, may be an additional feature that benefits your business. Again, consider the needs of your company and shop around your options for software that best fits these needs.Not sure where to start?

Available to your business. Stay On Top Of BookkeepingAccounting software certainly simplifies accounting and bookkeeping tasks, but it’s important to remember that it doesn’t do all the work for you. You will still have to keep on top of certain bookkeeping tasks. Disclaimer: Merchant Maverick aims to provide accurate and up-to-date information to assist you in your research.

You should double-check with the service provider/financial institution directly as well as obtain independent financial advice prior to making any financial commitments or business decisions.Please refer to our to learn more about how we earn compensation from affiliate partnerships and how we maintain our independent editorial integrity.Product & company names, logos, and trademarks referred to on this site belong to their respective owners.