Small business bookkeeping articles are here to simplify getting started, demystify setting up the chart of accounts, and make the recording of revenues and expenses for your business super easy. Here’s how….
The “Profit and Loss Statement” (P&L) captures all revenues and expenses on a period to period basis. If your chart of accounts don’t capture all your revenues and expenses, your profit numbers will not be accurate.
Ask any small business bookkeeping expert and you’ll be advised to make sure you set-up your chart of accounts correctly at the beginning. Think of your chart of accounts like a catcher’s mitt.
All your accounts will roll up into one of five categories:
- Revenues
- Expenses
- Assets
- Liabilities
- Owner’s Equity
If you need a refresher on the Profit and Loss Statement or the Balance Sheet, watch our easy and fun small business training videos. Get the low-down in minutes!
The last step in setting-up your chart of accounts is creating what are called “Balance Sheet Accounts.” These measure the value of your asset, liability, and owner’s equity accounts. By the way, if you need help with this, read our previous post.
Assets include cash or anything convertible into cash. Inventory, equipment, land, and buildings all fall into this category.
Liabilities are commitments the business has to pay back. These include credit card balances, payables to suppliers (money you owe them), credit lines from the bank (usually short term), and any outstanding mortgages.
Owner’s Equity is just that. It’s the amount of money you have given to the business (for start-ups) or the excess of your Assets minus Liabilities. Simply put: it’s the net worth of your business.
Remember this small business bookkeeping tip: your chart of accounts roll up into five major account categories: revenue accounts, expenses, asset accounts, liability accounts and owner’s equity accounts.
Underneath these major categories will be the subcategories that will breakout where all your revenues, expenses or equity came from.
Describe what you do, how revenues are generated, how you get paid, what you own, and how much you owe. Then ask the bookkeeper to help you create a chart of accounts so you can capture all the sub-accounts you’ll need.
Small business bookkeeping is not hard if you start out with a chart of accounts that reflects how you do business.
If you need a refresher on assets, liabilities, owner’s equity or the balance sheet, our small business training videos make it really easy to understand. They’re fun and in the time it takes you to drink a cup of coffee, you’ll learn what you need.
And if you get stuck, hit the Panic Button. Real experts, real time. Free for now.
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