You have to be a little bit in love and believe in your product if you hope to successfully start and run a business. But are grit and passion for what you are doing honestly all it takes to get a company off the ground? Not quite.
While they play a large part, you’ll still need other tools to keep your burgeoning business afloat. You’ll need to be able to record and organise your business’ finances, as well. For that, we’ve prepared a list of some basic concepts and definitions that a business owner would need to know.
Understanding Your General Ledger
Your general ledger, sometimes also called the “trial balance” is a list of your accounts, the place where you would log and classify your business’ financial transactions. Every transaction you log into the business’ general ledger is referred to as a “journal entry.” These entries are largely classified into two main reports, the balance sheet and the profit & loss, with further sub-classifications/transaction categories:
Balance Sheet:
Assets. The category refers to the things that are bought and you own (or partially own). It encompasses things like stock/inventory, prepayments, cash and other money owed to the business as accounts receivable.
Liabilities. In contrast to your business’ assets, this category refers to what is owed by your business to other parties, or how you paid for your assets. Your business’ liabilities may include any amount of unpaid bills (accounts payable), loans, taxes, wages, etc.
[Owner’s] Equity. Also known as shareholder equity, this category describes the capital introduced and withdrawn by the business owner or shareholders. It is essentially the balance of what you own, less what you owe (your assets less your liabilities).
Profit & Loss:
Income. This category refers to the cash flowing into the business, mostly due to sales.
Expenses. Lastly, this part of the general ledger deals with business expenses or the money that is going out.
Chart of Accounts
The chart of accounts is the specific list of ‘accounts’ that sit in the general ledger. Most often numerical in nature and following a certain string i.e 1xxxx = revenue, 2xxxx = expenses and so on.
Essentially, the chart of accounts helps to break down and categorise, in more detail, the larger classifications of your general ledger (assets, liabilities, income, expenses and equity). It will be specific to the business of industry that you operate in and often also reflects the personal preferences of the accountant or business owner. Your bookkeeper will develop and amend your chart of accounts to meet the needs of the business.
Financial Statements
There are various levels of detail you might present in your financial statements you could present. From cash flow to short-term bank loans to administrative overhead financial statements, however, the three main reports or financial statements that you’ll need as a business owner and where each account category falls under it.
Balance sheet. Comprised of the assets, liabilities and owner equity categories, your business’ balance sheet reflects everything it owns, including the properties’ corresponding values. It also shows any amounts that your business currently owes.
Profit and Loss. Made up of the other two categories of your business’ general ledger, a P&L totals the income and expenses over a period of time. The figures reflected demonstrate how the business is trading.
Cashflow Statements. Many inexperienced business owners don’t understand the difference between a Profit & Loss and their cash balance. A cash flow statement helps to make the difference between these two figures more transparent. It shows the application/use of cash.
Working with Bookkeeping Experts
While making sure your business’ books are in order and up-to-date may not excite you or inspire as much passion in you as your product, a firm grasp of bookkeeping concepts and how to utilise them can revolutionise the way you conduct business.
Being able to talk the same language as your bookkeeper will assist in analysis and understanding, and ultimately transparency into your business financials and future planning.
If you’re focusing on managing your company’s operations, then get outsourced bookkeeping services from Your Finance Department to help you with the financials. We’re a team of experienced bookkeepers, accountants, BAS/TAX agents and CFOs.
Let us handle your business’ finance department needs.
While they play a large part, you’ll still need other tools to keep your burgeoning business afloat. You’ll need to be able to record and organise your business’ finances, as well. For that, we’ve prepared a list of some basic concepts and definitions that a business owner would need to know.
Understanding Your General Ledger
Your general ledger, sometimes also called the “trial balance” is a list of your accounts, the place where you would log and classify your business’ financial transactions. Every transaction you log into the business’ general ledger is referred to as a “journal entry.” These entries are largely classified into two main reports, the balance sheet and the profit & loss, with further sub-classifications/transaction categories:
Balance Sheet:
Assets. The category refers to the things that are bought and you own (or partially own). It encompasses things like stock/inventory, prepayments, cash and other money owed to the business as accounts receivable.
Liabilities. In contrast to your business’ assets, this category refers to what is owed by your business to other parties, or how you paid for your assets. Your business’ liabilities may include any amount of unpaid bills (accounts payable), loans, taxes, wages, etc.
[Owner’s] Equity. Also known as shareholder equity, this category describes the capital introduced and withdrawn by the business owner or shareholders. It is essentially the balance of what you own, less what you owe (your assets less your liabilities).
Profit & Loss:
Income. This category refers to the cash flowing into the business, mostly due to sales.
Expenses. Lastly, this part of the general ledger deals with business expenses or the money that is going out.
Chart of Accounts
The chart of accounts is the specific list of ‘accounts’ that sit in the general ledger. Most often numerical in nature and following a certain string i.e 1xxxx = revenue, 2xxxx = expenses and so on.
Essentially, the chart of accounts helps to break down and categorise, in more detail, the larger classifications of your general ledger (assets, liabilities, income, expenses and equity). It will be specific to the business of industry that you operate in and often also reflects the personal preferences of the accountant or business owner. Your bookkeeper will develop and amend your chart of accounts to meet the needs of the business.
Financial Statements
There are various levels of detail you might present in your financial statements you could present. From cash flow to short-term bank loans to administrative overhead financial statements, however, the three main reports or financial statements that you’ll need as a business owner and where each account category falls under it.
Balance sheet. Comprised of the assets, liabilities and owner equity categories, your business’ balance sheet reflects everything it owns, including the properties’ corresponding values. It also shows any amounts that your business currently owes.
Profit and Loss. Made up of the other two categories of your business’ general ledger, a P&L totals the income and expenses over a period of time. The figures reflected demonstrate how the business is trading.
Cashflow Statements. Many inexperienced business owners don’t understand the difference between a Profit & Loss and their cash balance. A cash flow statement helps to make the difference between these two figures more transparent. It shows the application/use of cash.
Working with Bookkeeping Experts
While making sure your business’ books are in order and up-to-date may not excite you or inspire as much passion in you as your product, a firm grasp of bookkeeping concepts and how to utilise them can revolutionise the way you conduct business.
Being able to talk the same language as your bookkeeper will assist in analysis and understanding, and ultimately transparency into your business financials and future planning.
If you’re focusing on managing your company’s operations, then get outsourced bookkeeping services from Your Finance Department to help you with the financials. We’re a team of experienced bookkeepers, accountants, BAS/TAX agents and CFOs.
Let us handle your business’ finance department needs.
