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Created on: October 29, 2008
Accounting is the art of getting the right beans in the right box bean counting, if you will, and while it has to, by necessity, get rather difficult in large and sprawling companies, there are a few things to remember.
All businesses are 80% or more the same. By this, I mean, you acquire something, usually at some cost and sell that something to someone else, hopefully for more than it cost you to acquire. If you have a retail store, you acquire inventory (product available for sale), occupy a space in which to do business (either by renting or buying a store location), staffing it, and sell the products to a customer. If you are a consultant, you acquire expertise (either through experience or college or whatever) and sell that expertise to someone willing to pay you for what is in your head.
To be successful, you have to collect more cash than you spend.
In its simplest form, a check book will work. And there are a lot of successful business managers that "manage to the checkbook" and nothing else, because, the general idea is that you collect more than you spend.
When you have partners or investors or lenders though, they will require something more and unless you have a business degree, it is usually advisable to have someone else keep the books for you, whether that person is a CPA or bookkeeper. Depending on what you have going, either one can be fine on a day-to-day or monthly basis, but you should have a relationship with a good CPA for taxes and planning and general financial support. The thing is, you really don't want to spend the time necessary to keep the books yourself, even if you have a business degree, because your time is better spent acquiring the stuff to sell and selling it. If you are lucky and your fledgling business turns into the next Microsoft, you will employ accounts and bookkeepers and CPA's directly, but for the beginning, that is not normally necessary.
But without regard to whether they accounting function is on your payroll or contracted-out, you need to know what the heck the numbers on the paper the bookkeeper or CPA gives you mean. This is a very basic introduction. You will need more, much much more, than is what is in this article and your CPA will be happy to help you understand more (if they are not, find another one).
The Balance Sheet is a listing of all assets and liabilities of the business.
Assets are things like cash, things we hope turn to cash rather quickly, like inventory and accounts receivable, and long-lived
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