It is well accepted that in most small businesses, the owner does everything from accounting to clean up, even if their true passion lies in making widgets. While it is always best to hire experts to support you, you understand their language.
Errors on your business tax return can be costly. It can mean additional penalties for underpayment. Small businesses also often misclassify business and personal expenses. Depositing employment taxes into the wrong accounts is also common. These are just a few of the errors that can be correct by working with a tax accountant.
Read on to learn the basic accounting terms you need to speak effectively with your CPA.
Let’s start at the beginning; there are some basic accounting equations that are at the core of your business’s success. First, Assets = Liabilities + Owner’s Equity. This determines your company’s value. Gross Revenue – Expenses = Net Profit, this simple formula dictates how much money your company makes.
Basic Accounting Terms
While there are 100’s of terms in accounting, here are a few that you must know. The first two are Cash versus Accrual accounting. In cash accounting, you account for your company’s cash on the day it is brought in. For example, a clothing store sells an item—they account for that sale on that day.
In accrual accounting, you account for sales as they happen over time. For example, a yoga studio that sells packages of classes accounts not for the sale of a package, but for a portion of that package on the day it is used.
A few other important terms include gross, net, debt, and credit. Gross is your revenue before expenses. Net is the revenue after expenses are removed.
Debits refer to both an asset and expense. For an asset, a debit is an increase, for an expense account debit is a decrease. Generally, these are to be on the left-side column.
Credits also refer to both assets and expenses, but in reverse. They are found in the right side column. A credit decreases an asset or expense account or increases the liability account.
Basic Accounting Software
You could create a paper ledger, but in today’s modern world, why bother. Quickbooks is one of the most common small business accounting software on the market. Their online version allows you and your accountant or bookkeeper to work inside your books at the same time. This can be a real benefit to ensuring your books are up to date.
Do You Need Help with Basic Accounting?
We are here to help; our qualified team can help you turn your financials into a tool to help your company grow. We can teach you basic accounting, how to use Quickbooks, and ensure your taxes are prepared so that you are paying, only, what you owe. Ready to get started? Contact us, during our initial call we can discuss your needs and how we can support you, and your small business.
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