Accounting 101 Guide - Acclivity

1 AccountEdge Accounting 101 GuideWritten by: Todd Salkovitz Product Evangelist Page 2 Like all s m all bus ine s s ow ne rs, you went into business with a dream: to sell your unique product or services and make a good living for you, your family, your employees and your partners. You also wanted to change the world so you made the decision to run your small business using AccountEdge. Now reality has kicked in and you are f ace d w ith the challe nge of m anaging your ope rations and your f inance s , all on a Macintos h. In this s pe cial e dition of A ccounting 1 0 1 w e ll e xplain the bas ics of Accounting in easy to understand terms with real life examples, showing you the im pact on your financial state m e nts. We ll also discuss working with your CPA , no matter what platform they are using.

2 Le t s re vie w w hat you ve probably alre ady done today. W he n you got to w ork you probably che cke d the fax machine for any incoming orders. Next, you reviewed your email for any email or web orders. You also check voice mail to see if any previous quotes have been accepted. You also checked the mail, where you found a stack of ve ndor bills and a f e w customer checks. Next, you reviewed your online bank balance and saw that the big de posit you we re waiting for finally arrive d. Ne xt, you wrote some checks and ordered more inventory. Feeling kind of flush, you called the local Apple Store and placed an order for that new MacBook Pro you wanted, using your credit card. Since it s Friday, you also had to run payroll, process paychecks and m ake your dire ct de pos its.

3 You als o w e nt to the bank and m ade a 9 4 1 de pos it. When you got back to the office you had a stack of phone messages, including one from your best supplier offering a one-day sale and from your newest customer who wanted to exchange some parts and place another order, he was also asking for credit terms, and he had a lead for some new business you had dis cus s e d. The n your ce ll phone rings , anothe r ne w clie nt w ith a huge orde r as king if you acce pt credit cards. Finally, you realize you better pay yourself, if there is money left. Then you as k yours e lf : How s cas h f low ? W ho ow e s m e m one y? W hom do I owe money to? Is m y bus ine s s going to s ucce e d? How do I ke e p it all together? How do I know?

4 Does this sound like a typical day for you? As a small business entrepreneur, it probably doe s. Most like ly, you de al with all this stuff and m ore be fore your first cup of coffee. Admit it, you probably struggle a little bit to keep it all together. No matter how you handle all these transactions, the fact is, they are all Accounting transactions: taking orders, buying stock, selling parts, buying computers, making deposits, writing paychecks, remitting payroll taxes, paying yourself, and more. In the average day, you probably do more Accounting than you ever thought possible. How you track that data, what reports you have access to and how accurate and up to date they are play a large part in determining your financial success.

5 How you work with your bookkeeper (if that s not you) and your CPA (you should have one you love ) probably de te rm ine how succe ssful your busine ss is. How you keep it all running smoothly probably falls on your shoulders. Knowing your local, state and federal tax regulations, deadlines and responsibilities probably ke e ps you up at night. Unde rstanding what it all m e ans and using that inform ation to your advantage is what this document is all about. Page 3 When you started your small business you probably did as most small business entrepreneurs do and tried to use what came with your Mac or PC to run your busine ss. Maybe you trie d some free service or Excel. If you are a creative professional, you may have used a system that looks like this: Invoices were done in Quark (because you could put your logo on them in ), checkbook register in Exce l, and e ve rything e lse done by hand.

6 Your first e xpe rie nce with bookke e ping was probably to use a computerized checkbook system since it worked so well for your hom e f inance s . Not a bad place to s tart. But, as your bus ine s s gre w be yond the checkbook, your record keeping, reporting, and compliance requirements also grew. Now you have customers to track, vendors to pay, sales to record, sales taxes and payroll taxe s to track and a full se t of accounts to m aintain. You probably also have an accountant w ho is pre paring your s tate , f e de ral and m aybe e ve n your payroll taxe s for you. Maybe you have inve ntory, or bill your e m ploye e s tim e , or hire lots of subcontractors all of these things require integrated record keeping, they a-c-c-o-u-n-t-i-n-g!

7 By now you find yourself spending more time keeping your books than keeping your customers happy. You understand the importance of having accurate books, but you have a lot of demands on your time, so Accounting and record keeping never seem to get the attention they require. You fondly skipped all those high school and college Accounting courses, figuring you weren t going to be an accountant anyw ay. W e ll, s urpris e ! Not only are you an accountant, you are a law ye r, a s hipping clerk, a customer service rep, a lawyer and more all in the pursuit of your dream. So w hat can you do to make this work? The first step is to understand the basics and how they all fit together. At the end of this booklet is a glossary of all the relevant Accounting te rm s that w ill he lp you unde rs tand the s cie nce of Accounting .

8 Understanding the terminology will help you understand the concepts and their relevance to you, and more importantly, they will help you analyze and run your small busine ss. A ll the inform ation you need to run a successful small busine ss is contained in your Accounting system recording your transactions, verifying their accuracy, and inte rpre ting your f inancial s tate m e nts that s your goal! Page 4 Before we go any further, keep this in mind: you don t have to be an accountant to run AccountEdge. All too often small business owners use this line to shun doing any type of re cord ke e ping ( and the re f ore , bus ine s s m anage m e nt) , to the ir ow n detriment. The reality is, I m not a mechanic, but I can drive my car.

9 I m also not a plum be r, but I can fix a running toile t and I m ce rtainly not a doctor, but I can put a band-aid on m y kids kne e , e ve n take out a s plinte r. A ll it take s is the w ill to s ucce e d and the de s ire to run a s ucce s s f ul ope ration. W ill it be e as y? I w is h I could s ay ye s . Will it be frustrating? I wish I could say no. Will it be invaluable to your busine ss and your long-term success? You bet! Will you ever need outside help? You might, so don t be afraid to call in a professional either your accountant or one of our AccountEdge Certified Consultants (local, tech-savvy, bus ine s s m anage m e nt experts) in your community, find them online at dge .com . Our goal is to he lp you unde rs tand the bas ic conce pts of Accounting and how the y relate to your business.

10 One of the great things about AccountEdge is that it doe s all the debits and credits for you empowering you to manage your business. Smarter. Your Daily Life Firs t, le ts s tart w ith an ove rvie w of how Accounting f its into your daily lif e . Quite simply, every transaction you make results in an entry into your books. Whether it is a re ce ipt of cash, a sale , a che ck you ve writte n or a de posit from a custom e r every transaction gets recorded in your books at some point. The timeliness and accuracy of w he n and how you re cord your trans action dire ctly af f e cts your ability to manage your business and your cash flow because accurate and timely data entry equal accurate and timely financial statements.