Learning basic bookkeeping is an important skill, especially if you have just established your own business. While knowing how to market yourself is vital and of course you need the right product or service, you also need to make sure that your books are up to date.
While you can get someone to do the bookkeeping for you, it is still a good idea to be aware of what goes in the books to make their work as efficient as possible. They will need to make sense of your system and you do not want to pay for extra time for something that can be avoided.
With the accrual method, you still note what comes in and out. However you note the transaction before the money has been paid in and note as these transactions take place not when the currency has been exchanged. In some cases such as if you have an inventory or more than a certain amount of sales, you may have to use this method so it is worth checking this with a financial advisor.
On a simple level, what you are doing is recording your profit and your loss. It is often said that for each credit there is a debit and for each debit there is a credit. There are two methods of entry for book keeping, either single entry or double entry. All this basically means is how often you enter the information.
Smaller businesses tend to favour the single entry system but the advantage of a double entry is that you are more likely to see if any mistakes have come up. Ideally you should enter any purchases or sales as soon as the transaction takes place.
With a sales ledger, debit goes on the left and credit goes on the right. You have probably seen a similar setup with your bank account. For example, if you purchase T shirts for sale, then the amount you spent on those shirts is a debit. When you sell those shirts, that is the credit. The difference between the two figures is what is known as the gross profit. Net profit is what you have made after you deduct expenses, such as transporting the T shirts.
Always keep an eye on the stock and how much it is worth, ideally by having a separate stock account so as not to distort the figures. This is a basic overview of how the accounting system works. There are a number of courses and seminars you can attend that will help guide you through the system or you can talk to an independent financial advisor.
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