Accounting: The Basics for Beginners

If you need to start a new business, you're going to need to learn about accounting. And while that's not exciting, it is important. You'll need to be able to read your own company's financial statements, and if you ever hire an outside accountant, you'll want to be able to talk to them about your books in their language.

Why Accounting Matters

To start a business, you may need to borrow money or accept a loan. Unless you already have a large amount of capital, you'll need to show the lender how you plan to use your money to repay the loan. Also, if you can't get an investor or a business loan, you'll need to prove that you have enough money to sustain your business, as the lender may expect a certain amount of expenses to be met each month. In addition, if you sell products, you'll need to pay the vendor for the product in return. However, because all your money is being spent, you need to know how much money is coming in and how much money you have to spend, or you risk going into the red.

What is Accounting?

Accounting is the science of measuring money, people, and other things. If you start a business, you're going to need to record the dollars in your company. You'll need to report that money to investors, banks, and other people who have a stake in your company. And because accounting is one of the most boring parts of starting a company, many people choose to hire accountants. There are hundreds of different fields of accounting and finance, each with different standards and rules. The core fundamentals of accounting are generally the same, but every firm has its own specialties. Accounting can be a lucrative field of work, but it also can be very complicated. Many people learn about the basics of accounting in school or on the job.

What is Financial Reporting?

As a beginner, you might not be familiar with the term "financial reporting." Well, it's the process of gathering and reporting data about a company's income. In order to do that, you need to know about income statements, balance sheets, cash flow statements, and income taxes. Understanding the basics of these statements will be essential to your ability to keep track of your business' finances. Basic Accounting Roles Accounting is a widely varied field, but there are a few roles you'll need to learn at an early stage in your business' development. The Accountant You'll want to hire an accountant from the beginning, and depending on your business, you'll need one for at least a few years. There are advantages and disadvantages to working with a single professional.

Financial Statements

For those who aren't familiar, a financial statement is a document that shows a company's income and expenses. It shows how much money your business is making, and how much money it's spending. It also shows how you're doing in comparison to your competition. A great book for learning how to read financial statements is The Personal Profit Companion, which explains the basics of the accounting system and provides reading assignments to get you started. Cash Flow Statement A cash flow statement is also an important financial document. It helps you know how much cash is coming into the business, and how much cash is leaving it.