There are a number of things that are important in running your own business, but none more so than being able to do your own bookkeeping or, at the very least, being able to read your accounting records. There is a degree of trust that is necessary and even desirable in running a business, but one of the important pieces of being able to avoid micro-managing, is understanding what it is you are delegating and how effective your underlings are at their jobs. It makes a huge difference with your effectiveness if you do not have to have the reports that you ask for explained.
One of the very first things you will need to understand is double entry accounting. Most accounting software packages will allow you to choose either single or double entry accounting as a means of keeping track of your books. I would highly recommend double entry accounting for a number of reasons but the main one is this: it makes it much easier to keep you from making mistakes, particularly when you start out.
There is no mystical means of setting up your books, or keeping your records. You do not need to rely on guesswork or a magic eight-ball. The theory behind double entry accounting is basically that for every debit you record, there must be a corresponding credit. If you add one to the other, it should always equal zero. This is a self-correcting system that prevents you from writing checks that have no offset or paying bills without keeping track.
If you write out a check for office supplies at the store, the record for the check would be a debit from the checking account, and the corresponding credit would fall under your office supplies expense account. If you receive a bill, the debit would fall under the accounts payable liability account, and the credit would be either under the inventory asset account, if the bill is for goods received for sale, or the expense account covering the bill, if it's office supplies, freight, utilities, rent, telephone or whatever account category the bill falls into. It is just that simple. It means that as you reconcile your bank statement to your checking account, you can also reference that same transaction in the expense accounts it relates to, or for the inventory you have on hand.
So, having all that information listed above, it will make it much easier to read your reports on expense accounts, your standard profit and loss statement, and your inventory on hand, because now you know how those things were entered, and what they mean. Your expense account reports show the individual amounts that have been spent and the total over a given time period.
Your standard profit and loss statement shows all of your income or gross profit over a specific period of time, and details your expenses over that same time period. After subtracting them out, what remains is your net profit. Your inventory on hand will show you the number of items you have on hand for resale, the average cost of those items, and the total amount that those items cost or are worth.
Being able to do all of these things, or at the very least to understand them will help you to run your business more efficiently. It will also help you to understand what is going on with your finances, budget more effectively and reduce the amount of fraud or shrinkage that occurs. This basic and elementary understanding of bookkeeping and accounting will help everything move more smoothly as you pursue your goals for growth and gain. It does not have to be complicated.
