Many small business owners and millions of start-up entrepreneurs are leaders when creating great products and services is concerned. They are also masters at making great teams and winning over customers. However, majority of them fail on basic bookkeeping.
Below are 10 of the most common types of bookkeeping accounts a small-business owner like you should know.
Bookkeeping does not get more basic than this. Every transaction of your business passes through the cash account. This is very important because bookkeepers use two journals, the Cash Receipts and Cash disbursements. They are used to track the business activity.
2. Accounts Receivable
If your business sells products or services and you do not collect payment instantly, you need to have Accounts Receivable records. This is the money due from your customers. Keeping the records up to date is very important because you will be able to send accurate and timely bills or invoices.
Goods you have in the stock to sell are just like money on a shelf and should be wisely accounted for and carefully tracked. The records you have in your business books should be occasionally verified by doing physical tallies of stock on hand.
4. Accounts Payable
To all business owners, it is very painful to send money out of the business. However, it is less painful if you can have a clear view of all your payments. Having an Accounts payable record will help you have timely payments and if you can pay the payments early, you can probably qualify for discounts.
5. Loans payable
If you have borrowed some money to purchase vehicles, office equipment and other business items, loans payable is the account that tracks what is due and what is owed.
This is the account where you record all incoming revenue from your sales. Recording what you sell in a timely and accurate manner is very important to know the future of your business.
The purchases account is for recording finished goods or raw materials that you have bought for the business. It is a key factor of calculating cost of goods sold, where you subtract from sales to get your business gross profit.
8. Payroll expenses
The biggest cost of most businesses is payroll expenses. Keeping this account up to date and accurate is crucial for meeting tax and all other government requirements. Dodging some of these responsibilities can put you on the wrong side of the law.
9. Owners’ Equity
This is an important account in all businesses. Mainly, it’s used to track the amount the business owners put into the business. Majority of small business are owned by an individual or a group of associates who are not incorporated and therefore no stock shares to divide up the ownership. Any money put into the business is traced in capital accounts, and the money taken out is tracked in drawing accounts. To be fair to all partners, your books should record all Owners’ Equity accounts.
10. Retained Earnings
Retained earnings accounts are used to record any business profits that are reinvested in the business and not shared by the owners. Management of this account is simple and is essential to lenders and investors who want to know about the business previous records.
Most business owners see bookkeeping as waste of time. But if you can actually understand bookkeeping and use the data in your books properly, it can help you run your business very well.