Accounting is the essential aspect when you become an entrepreneur. But what is it, exactly? What benefit does it bring you?
Accounting isn’t a black hole for your time if you have the correct people, tools, and resources. We’ll go over the fundamentals here so you can get started.
Simply put, the definition of the word “accounting, “It is the method by which your company keeps track of, organizes, and explains its data.” Accounting can collect raw financial data, records business activities, and ranks them.
Accounting indicates the assets you have, for example, if you’re making a profit, how much cash you have on hand, how much your company’s assets and obligations are worth, and which areas of your firm are genuinely profitable.
Bookkeeping vs. Accounting
Bookkeeping and accounting are both vital elements of your financial management. The objective of bookkeeping is the collection and organization of financial information. Business owners and investors are responsible for the interpretation and presentation of this data.
Accounting and Bookkeeping are similar in many respects, and some people consider Bookkeeping to be a subset of accounting. However, suppose you want to distinguish between the two. In that case, Bookkeeping is recording and categorizing financial transactions, whereas accounting is putting that financial data to good use through analysis, strategy, and tax planning. Accountants Granada hills manage Bookkeeping.
The first step is the recording of transactions in accounting. Any activity or occurrence involving your company’s money must be recorded and kept this track in the general ledger. Keeping track of business transactions in a way is Bookkeeping.
The first step in what accountants term the “accounting cycle” is Bookkeeping, which is a process that takes in transaction data and produces accurate and consistent financial reporting.
Following are the step of the Accounting Cycle.
1. Analyze and keep track of transactions. Gather all invoices, bank and credit card statements, and receipts related to business activities.
2. Journal entries should be added to the ledger. It’s time to take those documents and start recording your transactions in a journal. A transaction in a journal entry has three parts:
· when it happened,
· what it was for,
· and how much it cost.
Single-entry accounting is used by some firms, in which only the expense or revenue is recorded. On the other hand, double-entry accounting is more popular, as it records each transaction in two accounts: where the money comes from and where it goes.
3. Make a trial balance that isn’t altered. Please list all of your company’s accounts and their balances at the end of each reporting period.
4. Preparing adjustment entries come at the end. You are ready to modify entries when you need to edit entries you’ve already produced. For instance, if a client is late paying an invoice and you provide a 5% reduction to help settle, you would enter the discount as an adjusting entry rather than modifying an existing entry.
5. Make a corrected trial balance. After you’ve entered all of the adjusting entries, you’ll have an adjusted trial balance. This data can now be transformed into financial statements.
6. Financial statements should be prepared. Finally, all of the data you’ve gathered is transformed into financial statements. These reports are concise recaps of every economic activity in your company.