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Things you need to know about accounting

Whatever you choose to do with your records, there are a few things you must know. To begin with, you need to collect and number all invoices and receipts, known as vouchers, in an organized manner in folders by dates. The next step is to enroll them in a basic book (see below) and a ledger (see below). Then compile the result in an income statement (see below) and a balance sheet (see below) and the substrate used to make financial statements (see below) in your company.

That is:

1. Collect all invoices and receipts by date in folders.
2. Record them in a daybook and a ledger.
3. Compile the results in the income statement and balance sheet.
4. Make statements.

Basic bookkeeping means that all business transactions must be written down in chronological order. Cash receipts and disbursements must be recorded each day, the rest as soon as possible, but no later than at the end of the following month. For each item, there should be a date, voucher number and amount of the debit and credit accounts.

In the ledger you sort all business events. All such events are collected in the same account. If you use the computer (which you should do), the records are automatically updated when you sign in at the daybook or directly from your vouchers.

Profits and losses
The income statement is a summary of the company's costs and revenues. When you are done with the records, you can compare the results with the budget you made for the period.

Balance sheet
The balance sheet is a list of the company's assets and liabilities. The sum of all assets must be equal to the sum of liabilities and equity (if any). The balance report will help you to monitor the liquidity of your business.

Financial statements is to give you an overview of your company, of your transactions and the health of your business at the end of a financial year. If you have more than 10 employees and/or assets of over 24 million, you should probably also make an annual report submitted to the IRS. (You need to check with them to be sure).

About the author

Stefan Ekberg has worked in marketing for small business for 20 years and has written around 30 books on how small business owners can market themselves with limited resources. . In 2012 Stefan was nominated as Entrepreneur of the Year in Stockholm.

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