Basic Accounting Records You Should Know
Accounting can be complicated, but we make it our goal to make it easy for you. Here are several basic accounting records to introduce you to the basics of accounting. Accounting records are used to keep track of a business, how well the business is doing, and what the business should change. The records are both for the personal use of the company and for potential investors.
Income statements are the company's way of keeping track of both profits and losses. They can be made on a daily basis, monthly, quarterly, or yearly. Companies use this information to see a visual of when their profits are being generated well and when they are not profiting very well. You can look at these specific periods of increase and decline to see what factors may have impacted your business’ incomes. Was the company doing something different that increased sales? The business may decide to make the change permanent to hopefully permanently increase sales. Was there something they did wrong that may have led to a decline in sales? The company will use that information to avoid declines from now on. The income statements can also look at income that is estimated to be paid and not just transactions that have already been made.
The balance sheets are a record of all of the company's assets, equity, and liabilities at a point of time. Assets are all the resources of value that the company has acquired from business transactions. Equity is the leftover resources after all debts have been paid. Liabilities are money owed to other companies or individuals. The assets and liabilities are sorted into two categories: current accounts and long-term accounts. Current accounts are expected to be paid sooner. Longer term accounts are expected to take a year or more to pay off. The most liquid assets such as cash are usually listed first on the sheet. The company uses the balance sheet in order to determine how their company is doing.
Statement of Cash Flows
The statement shows the profits and losses of the business. But unlike an income statement, the statement only looks at transactions that have already happened instead of earnings or losses that the company MAY earn or lose in the future. Estimates of potential earnings and losses belong in the income statements, not the statement of cash flows.
Why These Records Are Useful
These records are the essentials of accounting so that alone is a great reason to understand what they are. But you should also know about the records because the records are also considered tools of a business and can help your business both in the short term and long term. Not only do the records show your company’s position and how well it is fairing, the records also display that position to other companies and potential partners. If the company is doing well and the success is recorded, it can encourage other people to take interest in the company.
Accounting and financial records can get confusing, but Infinity Bookkeepers is here to help. With our fixed-fee pricing model, you get unlimited support so you can learn as much or as little as you want about your business’s bookkeeping. You never have to worry about getting charged for giving us a call.