8 Bookkeeping Basics You Can Not Ignore As A Small Business Owner

By Author: Elena James
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Are you looking for bookkeeping services? People these days are getting even more fascinated about virtual bookkeeping services. It takes a lot of effort to run a small company in a big city like Denver. It goes without saying that owning a company entails a slew of obligations that cannot be handled by a single individual. Which is why most businesses fail within the first few years of their life.

Financial blunders are frequently to blame for a company's downfall. In addition, the entrepreneur's ignorance of the importance of bookkeeping adds to the difficulty. It is impossible to overestimate the importance of a standardised and simplified accounting scheme.

It lays the groundwork for a flourishing venture that is founded on solid financial data. To make key financial choices, all experienced bookkeepers suggest that the company owner have a basic understanding of their accounts.

Furthermore, bookkeeping services in Denver saves time and money, prepares the company for tax season, decreases the likelihood of theft, and aids in auditing. To obtain an understanding of the texts, you must first understand ...
... the various forms of accounts.However, Denver Bookkeeping services are there to take care of your financial records and save you a bulk of time. Let's take a peek at the eight bookkeeping fundamentals that you can't afford to overlook as a small business owner.

Through this article’s medium let us discuss the basics of Bookkeeping which you as a small business can not ignore.

8 BOOKKEEPING BASICS

#1 Cash Account

Any bond trades must be paid in full from funds in the portfolio at the time of payment if you have a cash account with a trading company. Short selling and margin buying are thus forbidden in this account category. Regulation T of the Federal Reserve Bank of New York oversees cash accounts and the buying of shares on margin. Investors have two business days to pay for security under this law. It's referred to as T+2.

A cash account, also known as a cash book, is a ledger in which all cash transactions are registered. The cash account contains all the cash receipts and cash invoice journals. Bookkeeping services will take care of your account

Example of cash account

Suppose there is an investor who doesn't have any cash in his account now decides to purchase stocks costing $12,000 on monday. To cover up the costs, the investors sell other inventories worth $12,000. This is a liquidation violation because the investor purchases stocks costing $12,000 on monday, but fails to pay back within next two days.

#2 Sales Revenue

The income received by the firm via its sales of goods or services is called sales revenue. In accounting, “sales” and revenue are referred to the same term. Please note that revenue doesn’t always mean cash revenue but revenue paid in cash as well. And they are called account receivables.

In the income statement, sales revenue will be shown as either gross revenue or net revenue. Net income covers all allowances for products returned, the risk of undelivered merchandise, and the expenditure for unrecoverable payments receivable (also known as "poor debt expense," which is shown in the balance sheet as the suspense account). Gross sales, on the other hand, would not take these deductions into account. Deductions will be listed below gross revenue in the gross revenue presentation, and a subtotal for net sales will be listed after that. You can count on Denver Bookkeeping services to manage your sales revenue.

Example of sales revenue

The example below is from Amazon's 2017 annual report (10-k), and it provides a summary of its revenue by merchandise and services. Amazon made $119 billion in net retail revenue and $59 billion in net service sales in 2017, for a total of $178 billion. If you will see, this is the top of the income statement, and all costs and gains or losses are found in the report below that amount.

#3 Inventory

Inventory refers to the accounting of products, individual components, and resources used in manufacture or sold by a firm. You practise asset management as a market executive to ensure that you have ample product on hand and to recognise where there is a shortage.

The process of counting or listing objects is referred to by the verb "stock." Stock, as an accounting term, refers to any stock in different states of processing and is a current asset. Both retailers and suppliers will continue to sell or create products while they hold stock. Many businesses consider inventory to be a valuable commodity. Although inventory is a balance-sheet advantage, too much inventory may become a realistic liability.

Example

Inventories examples include but are not limited to: Raw materials/ components, Finished Goods, work in progress, Packing materials, safety stock, anticipated/ smoothing inventory, decoupled inventory, cycled inventory, theoretical inventory cost, Book inventory, transit inventory, excess inventory.

#4 Loans payable

A loan is an agreement in which the owner of property grants another party access to it (usually in cash) in exchange for an interest payment and the return of the property at the completion of the lending contract. A promissory note is used to document the loan. If any part of a debt is outstanding as of the date of a company's balance sheet, the residual balance on the loan is referred to as a loan payable.

When the interest of a loan is due within the next year, it is treated as an existing obligation on the balance sheet. Another part of the principal due in further than one year is known as a long term responsibility. If a loan covenant is violated but the lender waives the covenant clause, it can also mean that the whole loan balance is legally due at once, in which case it may be treated as a current liability.

Example of loan payable

Suppose a company obtains a $100,000 loan from a third-party lender and registers it as a debit to the cash account and a credit to the loan payable account. In one month, the company repays $10,000 plus interest on the loan payable, leaving $90,000 in the loan payable account.

#5 Accounts Payable

Accounts payable (AP) is a general ledger account that reflects a company's duty to repay a short-term loan to its creditors or vendors. Another general meaning of "AP" is the business department or division in charge of making payments to vendors and other creditors on behalf of the corporation.

Example of accounts payable

Assume a company receives a $500 invoice for office equipment. After the AP department opens the invoice, a $500 credit is recorded in accounts payable and a $500 deduction is recorded in office supplies cost. At this point, the $500 debit to office supplies expense is reflected in the income statement, indicating that the company has registered the sales transaction even if cash has not been paid out. This is consistent with accrual accounting, which requires charges to be remembered as they are accrued rather than as cash switches hands. The payment is then paid, and the accountant records a $500 credit to the cash account and a $500 debit to accounts payable.

#6 Accounts Receivable

Accounts receivable applies to a firm's unpaid invoices or the amount that customers owe the company. The term applies to accounts that a company has the right to earn as a result of delivering a product or service. Accounts receivable, also known as receivables, are a type of credit line issued by a corporation that typically has provisions that enable deposits to be made within a limited period of time. That can be anywhere from a few days to a fiscal or calendar year.

Accounts receivable are recorded as reserves on balance sheets when the customer has a moral duty to settle the debt. Furthermore, accounts receivable are existing assets, which means that the account balance is due by the debtor within a year or less. If a business has receivables, that suggests it has made a credit transaction but has failed to receive payment from the buyer. The corporation has essentially approved a short-term IOU from its customer. Allow bookkeeping services in Denver and let the bookkeepers take care of the rest.

Example of Accounts Receivables

An illustration of accounts receivable is an energy utility that pays its customers after they have purchased their power. As it waits for its clients to settle their bills, the power utility reports outstanding invoices as an account receivable.

Most businesses work by encouraging any of their purchases to be made on credit. Businesses may grant this credit to regular or special customers who receive periodic invoices. Customers can prevent the hassle of manually making purchases for each purchase by using this method. In most ways, companies routinely provide all of their customers with the option of paying after providing the service.

#7 Payroll Expenses

Payroll expenses are the costs of employing staff and contract employees with your business. To pay employees, begin with gross pay and subtract withholdings to arrive at net pay. Payroll processing necessitates the collection and management of data, and your payroll expenses can fluctuate on a regular basis.

Payroll expenses are the costs incurred by employers when they recruit new employees. Amounts deducted from a worker's salary and sent to a third party are not considered business expenses. To consider these distinctions, examine each payroll portion to decide whether or not it is a business expense.

#8 Retained Earnings

Retained profits are the earnings that remain with the corporation until the payment of dividends to its owners. Earnings retention is calculated from the company's results for the fiscal year. In the event of a net loss in any fiscal year, a corporation cannot pay dividends or hold profits.

Example of Retained Earnings

An organisation, for example, may begin an accounting period with $7,000 in retained earnings. They are the retained profits from the preceding financial cycle that have been taken forward. The corporation then earns $5,000 in net profits and distributes $2,000 in distributions. This is calculated as $7,000 + $5,000 - $2,000 = $10,000. This means that the corporation has $10,000 in retained profits for this accounting year.

Conclusion

Through this article’s medium, we explained how bookkeeping services can help you save time and also the 8 basics of bookkeeping you can’t ignore as a small business owner. We explained cash account, sales revenue, inventory, loans payable, accounts payable, accounts receivables, payroll expenses and retained earnings with examples.