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Accounting Basics For Businesses

Accounting Basics For Businesses

There are many strategies to get ahead and grow your company’s profit margin. In order to properly grow your company, you’ll need to understand the basics of both accounting and bookkeeping and how they interrelate to help your business.

Bookkeeping and accounting are often mistaken as serving the same purpose. In the larger sense, this is correct, as both bookkeeping and accounting aim to assist businesses grow in a financially responsible manner. However, when you take a closer look, you’ll see that bookkeeping and accounting are two separate tasks which share a symbiotic relationship.

Bookkeeping primarily entails:
• the systematic recording of all of the business’ financial transactions
• accurately extracting financial information from business transactions in a form that can be analyzed for issues related to taxes, financial reporting, and the financial position of the business
Accounting generally encompasses:
• interpreting the data provided by the proper recording and extraction of financial information
• providing financial advice about the business’ present and future direction

For ease of reference for this basic overview of business accounting, we’ll refer to bookkeeping and accounting as the single idea of accounting, as they share the same goal and contain overlap in the duties typically assigned to them.

Much of accounting consists of the non-glamorous “grunt” work of taking your expenses and revenues and systematically and meticulously entering them into your records. You must faithfully keep each receipt and record all financial transactions, including payments received and expenses paid out by the business. You’ll need to keep detailed records and keep receipts for at least four years (for tax purposes).

Through this information, you can create summaries of income and expenditures on a regular basis (daily, weekly, monthly) to give yourself a snapshot of the financial state of your business at any particular time and to chart its progress.

A general ledger is the single document that presents a record of revenues and expenses, and every financial transaction will make its way onto the ledger. It serves as a permanent record of the business’ financial dealings and progress. Every important financial document related to the business, such as balance sheets and profit and loss statements, are derived directly from the general ledger.

There are also sub-ledgers, which eventually make their way into the general ledger as well. For example, you might have an accounts payable sub-ledger where you log every outgoing check. Once the check is deposited by the recipient, that information is inputted (or “posted”) into both the sub-ledger and general ledger.

Next, you’ll have to take that information and post it to the ledger(s). You don’t have to post to the ledger after every transaction, but you should do so at regular intervals which are appropriate for your business.
How frequently you post to the ledger will be determined by the amount of business you generate on a regular basis. Large clothing retailers and restaurants have a huge volume of sales and expenses on a daily basis and these transactions need to be recorded meticulously and then posted at the end of the day. On the other hand, if you have a lower volume business, you can probably post on a weekly or even monthly basis.

Your general ledger provides you with information with which you can accurately gauge your business’ financial health and also provides a defense against an audit (either tax or other outside audit). You’ll also want the record so that you can quickly find any discrepancies to resolve disputes with customers (for instance if you’ve double billed, you’ll be able to see it).

The financial report is basically an analysis of the information provided by your record-keeping and ledger entries. You take the data and distill it into a form that helps you see where the business is making money, where cash flow needs to be improved, and the state of your capital investments.
A financial report can be one single document or several smaller documents, depending on your wishes and the needs of the business. Common reports include:
• Income statements,
• Statements of capital,
• Balance sheets,
• Profit and loss statements, and
• Cash-flow statements.

The bookkeeping and accounting tasks outlined above can be done on your own, but with the easy availability of quality accounting software programs such as Quicken, you should seriously consider using those programs to help you in the task. The software can help you keep accurate records and create basic financial reports to ensure your business’ security.

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When you need legal help with a business matter in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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People who want a lot of Bull go to a Butcher. People who want results navigating a complex legal field go to a Lawyer that they can trust. That’s where I come in. I am Michael Anderson, an Attorney in the Salt Lake area focusing on the needs of the Average Joe wanting a better life for him and his family. I’m the Lawyer you can trust. I grew up in Utah and love it here. I am a Father to three, a Husband to one, and an Entrepreneur. I understand the feelings of joy each of those roles bring, and I understand the feeling of disappointment, fear, and regret when things go wrong. I attended the University of Utah where I received a B.A. degree in 2010 and a J.D. in 2014. I have focused my practice in Wills, Trusts, Real Estate, and Business Law. I love the thrill of helping clients secure their future, leaving a real legacy to their children. Unfortunately when problems arise with families. I also practice Family Law, with a focus on keeping relationships between the soon to be Ex’s civil for the benefit of their children and allowing both to walk away quickly with their heads held high. Before you worry too much about losing everything that you have worked for, before you permit yourself to be bullied by your soon to be ex, before you shed one more tear in silence, call me. I’m the Lawyer you can trust.