Accounting and Book Keeping

If you sell products, then you want to make sure that you keep track of your inventory purchases, cost, and quantities. In general, you should create a purchase order and send it to your supplier when placing orders. Once you receive the product at your warehouse, it should be verified. Once you have verified all product was received, then you can enter the bill you received from your supplier and pay for the goods before the due date.

Money Out (Expenses)
As the old adage goes, you’ve got to spend money to make money. With that said, every business generates a variety of expenses. In general, expenses fall into one of the following categories:

1.Recurring

2.Non-recurring (unexpected expenses)

For recurring expenses like utilities and rent, you might have those payments automatically deducted from your bank account each month. Then, there are unexpected expenses – like repairs on a car that you use for business – that you may pay for those with a check or debit card.

This is also where you need to have a good system in place to help you keep track of how much you owe to your vendors and suppliers (accounts payable) and when payment is due. Different vendors may extend different payment terms, and a bookkeeping system keeps you organized.

Every business generates sales by offering a service like catering or selling a product like clothing. There are two types of sales:

1.Cash sales

2.Credit sales

The primary difference between the two is based on when you receive payment from your customer. For example, let’s say a customer comes into your store to purchase a pair of jeans. The customer pays you for the jeans and leaves the store. This is considered a cash sale because both the sale and the payment occurred at the same time, regardless of whether the customer paid with cash, credit card, or debit card.

A credit sale is one where some time passes between when you make the sale and when you receive payment from your customer. This is called a credit sale because you have made a sale “on credit” to your customer, anticipating that they will pay you at a later date

Liabilities are not expenses. The primary difference between the two is if you were to go out of business tomorrow, you would no longer have to pay expenses. You would stop making payments for utilities and you would lay off your employees and no longer have payroll expenses.

However, liabilities are outstanding balances that you owe, regardless of whether or not you are in business. For example, if you have a business loan that your bank extended to you, then you would still owe the bank that money until you pay off the loan.

One of the first things you will do when setting up your bookkeeping system is to create a chart of accounts list. The chart of accounts is the backbone of your bookkeeping/accounting system. We will discuss the importance of the chart of accounts and how to properly set one up in the next section.