As a small business owner, you may not have the time or resources to keep track of your finances yourself. That’s where bookkeepers come in. Vancouver bookkeepers are trained professionals who specialize in keeping financial records organized and up-to-date.
While you may be able to get by with a DIY approach to accounting when your business is first starting out, it’s important to eventually transition to working with a bookkeeper. They can help ensure that your financial records are accurate and complete, which will save you a lot of headaches down the road.
There are some basic accounting concepts that all small business owners should know, even if they’re not doing the day-to-day bookkeeping themselves. Here are four essential concepts every small business owner needs to understand:
Top accounting concepts for small business owners
Accrual basis vs. cash basis accounting
The accrual basis and cash basis of accounting are the two primary bookkeeping techniques. Regardless of when the money is actually received, income is recorded when it is earned under accrual basis accounting. So if you provide services in December but don’t get paid until January, the income would be recorded in December. Cash basis accounting records income only when it’s received (in our example, this would mean recording the income in January).
Accounts receivable (AR)
Accounts receivable is a term used to describe money that customers or clients owe your business for goods or services that have been provided but have not yet been paid for. This is an important number to track because it gives you an idea of how much money is coming in and when you can expect payment. Many businesses offer their customers financing terms such as Net 30, which means the customer has 30 days from the date of invoice to pay the bill in full without incurring any additional fees or interest charges. As a small business owner, it’s important to stay on top of accounts receivable so that you can manage cash flow and make sure bills are being paid on time.
Accounts payable (AP)
Just as important as tracking what people owe you, small businesses also need to maintain records of what they owe others – this is called accounts payable. Money that you owe to your vendors for your expenses like inventory, office supplies, or utilities is considered accounts payable .Much likes mall businesses, large corporations often take advantage of early payment discounts to save money on the porch.
Accounts receivable is a term used to describe money that customers or clients owe your business for goods or services that have been provided but have not yet been paid for. Knowing how much inventory turnover you have can also help you better manage cash flow since purchasing new inventory requires upfront payments which can tie up working capital.
Cost of goods sold:
These are the direct expenses incurred in creating the products or services that your business sells (e.g., raw materials, labor costs) Understanding cost of goods sold helps inform pricing decisions and gross margin analysis.
Assets and liabilities
Assets are anything that has monetary value and can be used to pay debts or generate income for your business (such as inventory, equipment, or real estate). Liabilities are debts owed by your business (such as loans from banks or credit card companies). It’s important to keep track of both assets and liabilities so that you always know how much debt your company is carrying at any given time.
Depreciation is an expense that reflects the wear-and-tear on certain types of assets over time (such as buildings or vehicles). For tax purposes, businesses can deduct depreciation expenses from their taxable income; this reduces the amount of taxes owed.