Accounting Made simple
When I first started my business way back in 1984 I was told to make sure I used good accounting software. So I bought a naccounting software program that used double entry and I found it impossible to understand.
Later I actual studied accounting and realized that the accounting system isdbasically a formalization of common sense. Just as engineering is basically common sense expressed in mathematical form.
Ther accounting equation is basically a statement of the conservation on dollars. A company does not create or destroy dollars, but just uses them. Dollars may enter the company’s accounts by sales or by investors equity and may exit the company through expenses.Thereforeit is prudent to create various dummy accounts to keep track of where the dollars are ant any time. For example there might be an office supply account When office supplies are purchased money exits the bank account and the vlue of trhe supplies go into the office supplies account. This doesn’t mean that there are actual dollars in the office supplies, it just means that the office supplies have some finitre value and could presuimeably be sold to recover that value.
It is important that each business owner decide what it the purpose of the accounting system. For most of us, it is to make sure we are ready to file tax returns. In that case a small business will likely need to file a ScheuleC with the IRS at tax time. It therefore behooves us to set up our accounting system to simplify that task. My recommendation, that I personally have followed for nearly 40 years is to grab a copy of sCHEDULEc FROM THE irs WEB SITE AND SET UYP YOUR ACCOUNTS ACCORDINGTO THE sCHEULE cATEGORIES. io PERSONALLY USE AN eXCEL SPREADSHEET TO KEEP TRACK OF MY INCOME AND EXPENSES ON A DAILY BASIS, THAT WY AT THE END OF THER YEAR, i CASN SIMPLY SORT THE EXPENSES BY CATEGORY, SUM UP EACH AND i’M READY TO FILL OUT MY sCHEDULE c FOR MY TAXES. tHAT WAY i’M NEVER LATE AND i ALWAYS PAY MY QUARTERLY TAXES ON TIME to avoid penalties.