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Maintaining an accurate paper trail is the only way to track your financial successes and review your financial failures – a task that’s vitally important for growing your business. You need to know what works so that you can repeat it in the future and build on your success. On the other hand, you need to know hwat failed so you can correct it and avoid making the same mistake again. 

–Bookkeeping for Dummies

The Basics

Accounting Methods

Cash Accounting

With Cash Basis Accounting, you record transactions only when cash changes hands. 

Accrual Accounting

With Accrual Accounting, you record a transaction when it is completed, regardless of whether cash changed hands. 

The Accounting Equation

Assets = Liabilities + Equity

Assets

Assets include everything your company OWNS including, but not limited to:

  • Cash
  • Buildings
  • Equipment
  • Vehicles
  • Inventory

 

 

Liabilities

Liabilities include everything your company OWES including, but not limited to:

  • Loans
  • Credit Card Balances
  • Vendor Bills

Equity

Equity is essentially your claim of ownership on the assets based on your portion of ownership in the company.

The Chart of Accounts

Your Chart of Accounts is your roadmap to success. It is a list of all the accounts your business has and a guideline as to what transactions go in those accounts. When utilized properly, your chart of accounts lets you know exactly where your business’s sucesses and failures lie.