To run a business successfully, you must be familiar with with the aspect of bookkeeping. Generally, bookkeeping is keeping a record of all financial transactions relating to a business. That way, the business owner can track every coin in or out of the company.
Introduction to Bookkeeping
Now that you know what bookkeeping means, let us look at the basic concepts and terms used by bookkeepers:
These are all the items that are owned by a business. They are divided into fixed assets and current assets. Current assets include those items like stock which are easy to convert into cash. On the other hand, fixed assets are those items like land which are hard to convert into cash.
These are debts that are owed by the business to its lenders. Liabilities come in two categories, namely, short term liabilities and long term liabilities.
Expense refers to all those activities that require money to be dispersed from a company’s account. For example, rent, salaries, and accounting fees are all business expenses. In addition, most expenses recur every month.
Income refers to all activities that generate money for a business, including income from investments and other business operations.
Bookkeeping vs. Accounting
Unfortunately, most people confuse accounting and bookkeeping. While the two terms seem similar, they are entirely different. Bookkeeping entails the collection and recording of data.
On the other hand, accounting entails analysing the information collected by bookkeepers. After analysing the records, accountants develop financial statements such as profit and loss accounts or the famous balance sheet. These financial statements are meant to show the financial position of a business.
More importantly, financial statements generated by accountants are used to show whether the business is making a profit or a loss. Financial institutions and creditors will ask for these statements to determine if a business qualifies for a loan. Lastly, the government requires these statements to calculate the amount of tax payable by a business.
Contact Perth Mobile Tax for more information.
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