Greenberg, Ettlin & Associates, PA presents "A Simple Start to Managing your Business Finances".

1. A Simple Start to Managing
Your Business Finances
A Guide to the Essentials
QB_10/2004_01
The following course covers the basics of financial management for your small
business clients, and normally takes less than an hour to complete.
•We’ve included “talking points” but not a detailed script (we wanted to give instructors
flexibility to present in the way that comes naturally and blend in their own perspectives
and experience)
•Please feel free to expand, abbreviate or customize this course as you see fit.
Course Introduction: A common goal among almost all small business owners is to
maintain ownership and control of their business – the good news is research shows that
people who take classes and continue to learn, are more likely to succeed, so you’re on the
right path! Let’s get started.
1

2. Financial Management Essentials
1. Introduction to Financial
Management
2. Why Accounts are Important
3. Using Reports
4. Managing Essential Tasks:
Practice Session
5. Tips and Resources
6. Appendix: Additional
Concepts & Terms
2
Today we’ll cover:
--What is Financial Management… and why do you need it?
--What are accounts…and why do you need them as well?
--Reports to understand how your business is doing – and make decisions for the future
--A quick practice session, to put all you’ve learned into practice
--Some tips and resources for getting started: Classes, online resources, and advisors who
can help YOU manage YOUR business
And then we have an appendix with additional concepts and terms, which we’ll get to as
time permits.
2

3. 1. What is Financial Management?
Process of:
• Running your
business
• Recording money
coming in and out
• Using reports to:
•Understand
how your
business is
doing
•Make decisions
3
What is Financial Management?
Financial management is simply process of:
1. Running your business (tasks you are already doing today)
2. Accurately recording money coming in and out of business (you are probably already
keeping track of this as well – so we’ll discuss how, as well as the possible benefits of a
more systematic approach).
3. Using reports to understand how your business is doing and make decisions
3

4. Six Ways Financial Management
Helps Your Business Succeed
2. Manage Customers and Sales.
Know and understand your customers
through consolidated records.
3. Production.
1. Cash Flow. Obtain goods and
Track the money services. Apply for and
going in and out of establish credit with
your business. your vendors.
YOUR
BUSINESS 4. Compliance.
6. Funding. Report your
To be considered for company’s incomes,
a loan or investment, expenses, and payroll
you’ll need complete accurately to the IRS.
financial statements.
5. Insight and Decision Making.
Make informed decisions – and price your product or
service for profitability – with financial reports
4
Why take the time to learn and use financial management methods?
Accounting is the language of business, so you and other parties (banks, IRS, etc.)
should all speak the same language.
1. Stay on top of your cash flow: Track money in and out of your business. Even a
profitable business can go bankrupt if it doesn’t track cash flow.
2. Manage your customers and sales: Track what they are buying, keep records up-
to-date so you can contact them
3. Production & Inventory: Know how to obtain goods and services from your
vendors and establish credit
4. Once your records are centralized, you can create reports for a variety of
important activities:
A. Filing with the IRS
B. Understanding how your business is doing (this will help on pricing
products and services)
C. Sharing your financial picture with third parties (banks, SBA, etc.) to
secure loans
And then of course, tracking the money going in and out of your newly larger
business. All companies, even huge established one’s with billions in revenue and 4
tens of thousands of employees rely on financial management for these six areas

5. Information is Power
What do you want to know about your business?
• How much money am I bringing in? Sales
• How much am I spending? Expenses
• Is my business making any money? Sales – Expenses
• What’s the value of what my
business owns? Assets
• How much does my business owe to
Liabilities
others?
• What is my business worth? Equity
5
Participation Question:
What are the key questions you have about your business to help you know where
your business stands?
(Note: create list of things clients would like to know about their business.)
There are certain questions all business owners would like answered. Businesses
that practice sound financial management and record-keeping will have the answers
to these questions (and more) at their fingertips.
5

6. 2. Financial Accounts
Why They Matter to Your Business
Accurate record keeping lets you understand and use
all your information
•Money in from
payments received
•Data on customers
and vendors
•Record of your
bank accounts
•Money out for
checks written,
refunds and other
expenses
6
Participation Questions:
How do you currently keep track of your business?
•Sales and invoices?
•Customer and vendor lists?
•Bills and checks?
What are some of the challenges you face with record-keeping today?
6

7. Cash Flow:
Money In and Money Out
Money In Money Out
Sales
Expenses
CUSTOMERS YOUR
BUSINESS VENDORS
Services /
Products Services /
Out Products
In
7
Cash is King
A healthy cash flow is critical to the viability of your business.
The first step towards a positive cash flow is understanding your inflows and
outflows: money in and money out.
•What does your business offer for sale?
•And then once your receive payment, what do you do with the money?
•Expenses. What type of products and services do you buy to keep your business
running?
Your money in from “sales” and money out from “expenses” create your cash flow.
These are two main account categories.
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8. Major Account Types
• Assets
– Current (cash, inventory, Everything your
accounts receivable, etc.) business
– Fixed (property, vehicles, possesses
machinery, etc.)
• Liabilities
– Current (within one year) Everything your
– Long Term business has
borrowed
• Equity
– Contributed capital: owner’s Everything your
investment business owns
– Retained earnings (profits)
Assets = Liabilities + Equity
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There are five major account categories total. In addition to
sales/income and expenses, the other major account types are assets,
liabilities, and equity.
Assets (what you have) = Liabilities (what you borrow/owe) + Equity
(what you own)
Assets
Current (cash, inventory, accounts receivable, etc.)
Fixed (property, vehicles, machinery, etc.)
Liabilities
Current (within one year)
Long Term
Equity
Contributed Capital: What investors, stockholders, family members,
partners, owners, etc. invest in the business
Retained Earnings: The total cumulative net profit a business earns over its
life, and not yet distributed
Participation Question:
Any questions? Now is a good time to ask! There are no bad questions. We’re all
here to learn.
8

9. Categorize Your Transactions
With a Chart of Accounts
Chart of Accounts
• Master account lists – a chart of
accounts – are used to sort your
transactions into categories
• Each account category contains
sub-accounts
9
The master account list, or Chart of Accounts, contains all the different
categories used to organize your transactions. Think of each
subcategory as a file folder, divided by type (e.g., your expense
accounts might include subfolders for advertising, car expenses, payroll,
and office expenses).
Quick Tip:
Try to keep your Chart of Accounts as simple as possible w/o too many
subcategories. Financial software programs like QuickBooks Simple
Start can help you get started with a basic Chart of Accounts.
9

10. Chart of Accounts:
Your Master List of Accounts and Sub-Accounts
NAME TYPE NAME TYPE
INCOME ASSET
Sales Income Checking Bank
Other income Other income Accounts Receivable Accounts Receivable
EXPENSE Undeposited funds Other Current Asset
Advertising Expense Equipment Asset
Car and Truck Expenses Expense LIABILITY
Contract labor / payroll Expense Loans Liability
Cost of goods sold Expense Sales Tax Payable Other Current Liability
Entertainment / meals Expense EQUITY
Office expenses Expense Contributed Capital Equity
Repairs and maintenance Expense (Owner’s invested funds)
Supplies Expense Retained Earnings Equity
Taxes and licenses Expense (Business’ profits)
Utilities Expense
Other expenses Other expenses
10
Here’s a sample chart of accounts.
Your accounts might differ slightly, but the accounts shown here cover the basic categories a
business needs to properly record it’s transactions.
Of the accounts listed above:
•Income comes from sales.
•Asset categories are: Accounts Receivable; Sales; Savings; Checking, Undeposited fund; etc.
•Expenses are extensive: advertising, car and truck expenses, commissions and fees, contract labor,
etc.
•Assets are your bank accounts, cash on hand.
•Liability categories are mortgage, loans, payroll etc. and other current liabilities (sales tax payable).
•Equity categories are: Owner’s Capital, and Opening Balance Equity.
Quick Tips:
•Avoid common mistakes: 1. Creating too many accounts 2. Setting up all accounts, including
expense accounts, as bank accounts
•It is important to properly classify all transactions as the are entered – don’t classify anything as
miscellaneous. It will take you much less time to classify accounts properly as they are entered than
having to go back and reclassify later.
•To help you with your chart of account categories, you may want to have an expert consultation
(FREE!) with an SBDC counselor or QuickBooks ProAdvisor (more details at end of presentation)
We’ll come back to accounts later when we try a practice problem.
10

11. Accounts:
What We’ve Learned
• Consolidate your Use Industry Specific
record keeping Accounts
• Use a standard set of Master account lists –
a chart of accounts –
accounts or categories
are readily available for
to “file away” most types of
transactions—there is business. Choose one
a common language specific to your
• Keep it simple: industry, and make
Significant accounts minor changes if
needed.
only
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So the five major account types are: sales, expenses, assets, liabilities
and equity. These accounts, broken down into sub accounts, are used to
classify your transactions. The master account list – a chart of accounts
–includes all the different categories used to organize and “file” your
transactions.
There is a record-keeping category or account that relates to each of the
questions we discussed earlier (slide #5). If you keep track of
information using those accounts, you’ll be able to answer all the
questions, without any extra work.
•How can you measure your profits are? (“Sales minus Expenses”)
•What category tells you what you’re business is worth? (“Equity”)
•Etc.
11

12. 3. Reports
Understanding Your Business and Decision-Making
Reports help you understand how your business is
doing
• Use reports as a
planning tool
– Gain insight into
your sales
– Income statement
(P&L) shows your
profitability
– Balance sheet
shows assets,
liabilities and
equity
• Regularly monitor
your profitability –
and your cash flow
12
If your business is a car – reports or financial statements are your dashboard. They
allow you, as the business owner, the driver of the vehicle, to see how the systems
are operating.
•Are you low on funds?
•Not earning a sufficient profit margin on your new product line?
Reports will organize the information you’ve “filed” away to help you see where
your business stands and keep your business running smoothly.
12

13. Make the Most of Your Reports
What do you want to know about your sales?
• What is selling?
Gain insight into
• Who is buying?
the health of
• Who owes me money?
your business
with reports:
• Sales by item
• Sales by
customer
• Unpaid
invoices by
customer
13
Reports help you answer questions, such as which products are selling, who is buying, and
who owes you money.
Reports can also show you how your sales compare to a previous period.
Three important sales reports are: Sales by Item, Sales by Customer, and A/R aging
(Invoices that Haven’t been paid).
Quick Tip:
An “unpaid invoices” report, for example, can make collections easier and make sure no
jobs or payments slip through the cracks.
13

14. Income Statement
• Summarizes the
revenue and
expenses of a
company over a
period of time
• Also called a
Profit & Loss or
P&L
14
Participation Question:
Do you currently produce a “Profit and Loss” report or “Income Statement” at your
business? Why or why not?
•The income statement reports how your business performed over a certain period of time.
•Income statement is also know as “Profit & Loss,” or “P&L”
•The income statement shows whether or not your business was profitable over a certain
period of time (normally either a full year or a period of three months).
14

15. Balance Sheet
• Shows the assets,
liabilities, and
equity at a given
moment in time
• Assets =
Liabilities + Equity
Equity also referred to
as Owners Equity
or Retained Equity.
15
A balance sheet is a snapshot of your business at a given moment in time. It shows all
assets, liabilities and equity.
“Current” assets and liabilities include those that have been incurred within a year.
Participation Question:
Do you currently produce a “balance sheet” report for your company? Why or why not?
15

16. 4. Manage Essential Tasks
Practice Session: Mark’s Atomic Graphic Designs
Money in Remember, the better
A. Record a sale you understand
B. Invoice a customer your cash flow
situation, the
C. Receive a payment
better you’ll be
D. Make a deposit prepared to make
Money Out the right business
E. Write a check / record an decisions.
expense
F. Use a credit card / record an
expense
16
As a business owner, you need to understand the essential processes of tracking your money
coming in and your money going out. Remember, your reports are only as good as your
records!
We’ll now walk through 6 common accounting tasks, so you can get a feel for the how to
categorize a transaction, as well as understanding of how the transactions impact the
reports.
“Hands-on” Option
If students have computers they can try these tasks hands-on.
16

17. A. Record a Sale
Practice Session – Money In
Money In: Record a Sale
Customer
buys
business
cards.
Pays on spot
with cash.
1 You issue
sales
receipt.
17
Participation Question:
Before we begin the practice sessions, do you have any questions? If you’re unsure about
any of the points we’ve discussed so far, let me know. We can talk it through, so you will
feel more confident.
[Begin Session]
A sale is “money in.” When a customer pays in cash, what do you do? (Issue a sales
receipt.)
Participation Question:
And what are the most important pieces of information you need to track about a sale?
(Think about the sales receipts you get when you buy something in the store).
“Hands-on” Option:
Click on “Sales Receipts” and Create a “New” receipt.
17

18. A. Record a Sale
Practice Session – Money In
Track Your Business
1 5 Issue sales
receipt
4
Record:
1. Customer
2. Item
2 3 3. Quantity
4. Payment type
5. Date
18
Quick Tip:
Note that you record this “on-the-spot” transaction as a sales receipt, not an invoice.
A common mistake is to record this type of transaction (on the spot sale) incorrectly.
“Hands-on” Option:
Go to “File/Open Company” and select the “Sample Company File.”
Enter the following information on the sales receipt.
1. Select “Cristina Andres” as the customer.
2. Under “item”, select “Add New” and type in “Business Cards.” Make the price “$200”
3. Enter “1” as the quantity
4. Enter “Cash” as the payment method.
5. “Use 12/15/2007 as the date.”
6. “Save and Close”
18

19. A. Record a Sale
Practice Session – Money In
See Where Your Business Stands
Profit & Loss
6. Sales
increase by
6 $215.50.
19
Participation Question:
How would this sale affect your Profit and Loss report?
“Hands-on” Option:
1. From the Home-Page, click on “Profit and Loss” Report in the middle of the screen.
2. Click on the “Sales” to drill down deeper to see all the company’s sales in that time
period. (You can see the recent sale to Cristina Andres at the bottom of the list.)
19

20. B. Invoice a Customer
Practice Session – Money In
Money In: Invoice Customer
Customer buys
graphic
design
services.
You complete
the design.
You invoice
customer.
1
20
An invoice is a bill for payment later (compare to a sales receipt).
“Hands-on” Option:
Click on “Invoices” and Create a “New” invoice.
20

21. B. Invoice a Customer
Practice Session – Money In
Track Your Business
1 Create invoice
5 Record:
1. Customer
4
2. Service
3. Quantity/hours
2 3 4. Payment terms
5. Date
21
“Hands-on” Option:
Enter the following information on the sales receipt.
1. Select “Senna Computers” as the customer.
2. Enter “Graphic Design” is the item purchased.
3. “2” is the quantity.
4. The terms are “Net 60”
5. The date is “12/15/2007”
6.“Save and Close”
21

22. B. Invoice a Customer
Practice Session – Money In
See Where Your Business Stands
Profit & Loss
7. Sales
increase by
7 $90.
8
Balance Sheet
8. Accounts
receivable
increase by
$90.
22
Participation Question:
How would this sale affect your Profit and Loss report? What about your balance sheet?
Notice that the A/R line on your Balance Sheet increases.
22

23. C. Receive a Payment
Practice Session – Money In
Money In: Receive Payment
Customer pays
by check for
1 business
card design
services
invoice.
Record receipt
of payment.
23
Senna Computers pays you for the graphic design services. So you “receive” the payment
against the outstanding invoice.
“Hands-on” Option:
Click on “Receive Payments” to Receive a “New” payment.
23

24. C. Receive a Payment
Practice Session – Money In
Track Your Business
1
Receive
2 payment
3 Record:
1. Customer
2. Payment
type
3. Enter
amount
24
“Hands-on” Option:
Enter the following information on the sales receipt.
1. Select “Senna Computers” as the customer.
2. Enter “Check” as the Payment Method.
3. Enter “$90” as the Payment Amount.
4.“Save and Close”
24

25. C. Receive a Payment
Practice Session – Money In
See Where Your Business Stands
Profit & Loss
4. Unchanged.
5
Balance Sheet
6 5. Accounts
4 receivable
decrease
Undeposited funds
appear in “Other by $90.
Current Assets”
6. Undeposited
funds
increase
by $90.
25
Participation Question:
How would this payment affect your Profit and Loss report? (no change) What about your
balance sheet? Notice that the A/R line on your Balance Sheet decreases.
Quick Tip:
When you receive payments, don’t make the mistake of just “depositing” the money. It’s
important to receive the payment against the outstanding invoice so you have an accurate
view of how much customers owe you and who still owes you money.
25

26. D. Make a Deposit
Practice Session – Money In
Money In: Make a Deposit
Go to bank to
deposit
check for
design
services and
cash for
business
cards.
1 Make deposit.
26
Now you are ready to go to the bank and deposit the money you have received.
“Hands-on” Option:
Click on “Deposits” to make a “New” deposit.
26

27. D. Make a Deposit
Practice Session – Money In
Track Your Business
2 Make deposit
Select:
Senna Computers
1. Undeposited
1 funds
2. Account type
27
Undeposited funds include payments from customers that are not yet in your bank account.
“Hands-on” Option:
Enter the following information on the deposit form:
1. Select the payments you would like to deposit and Click “OK.” (To “Select All,” click
on the button in the lower left portion of the screen.
2. Select the account to deposit to: “Checking”
3.“Save and Close”
27

28. D. Make a Deposit
Practice Session – Money In
See Where Your Business Stands Profit & Loss
3. Unchanged.
Balance Sheet
4. Other current
5
assets
decrease.
4 5. Checking /
3
Savings
Undeposited funds
appear in “Other
increases.
Current Assets”
28
Participation Question:
How would this payment affect your Profit and Loss report? (no change) What about your
balance sheet?
Quick Tip:
Your “profit and loss” in this case is not affected– you already recorded the sales when you
issued your sales receipt and invoice.
28

29. E. Write a Check / Record an Expense
Practice Session – Money Out
Money Out: Write a Check
Pay your
telephone
bill by
check.
1 Write check /
record
expense.
29
Let’s say you are going to pay a telephone bill by check.
“Hands-on” Option:
Click on “Write Check” to create a “New” check.
29

30. E. Write a Check / Record an Expense
Practice Session – Money Out
Track Your Business
Write check
2
Select:
1
1. Payee
2. Amount
3. Transaction
type
(Expense --
Utilities)
3
30
“Hands-on” Option:
Enter the following information on the check form:
1. Select “Cal Telephone” as the Payee.
2. Your regular payment is “$45”
3. Select “Utilities – Expense” as the account or category to file this transaction under.
4. “Save and Close.”
30

31. E. Write a Check / Record an Expense
Practice Session – Money Out
See Where Your Business Stands
Profit & Loss
4. Expense
(Utilities)
5 increases by
$45.
Balance Sheet
5. Checking /
4 Savings
decreases
by $45.
6. Equity
decreases
6
by $45
31
Participation Question:
How would this payment affect your Profit and Loss report? (expense) What about your
balance sheet?
Quick Tip:
Individual transaction may not make that large a difference on financial statements, but all
together these reports are powerful in helping you see where you business stands.
31

32. F. Use Credit Card / Record an Expense
Practice Session – Money Out
Money Out: Use a Credit Card
Buy office
supplies
with credit
card.
Use credit
card /
record
expense.
1
32
Let’s say you are going to buy office supplies with a credit card.
“Hands-on” Option:
Click on “Record Expense” to create a “Credit” transaction.
32

33. F. Use Credit Card / Record an Expense
Practice Session – Money Out
Track Your Business
Update credit
card register
Select:
1. Payee
2
2. Transaction
type (Expense
-- Supplies)
3. Amount
1 3
33
“Hands-on” Option:
Enter the following information on the check form:
1. Select “Burge Hardware and Supplies” as the Payee.
2. Select “Supplies – Expense” as the account or expense category.
4. Enter “$95” as the amount.
33

34. F. Use Credit Card / Record an Expense
Practice Session – Money Out
See Where Your Business Stands
Profit & Loss
4. Expense
(Supplies)
increases
by $95.
Balance Sheet
4 5. Credit cards
increases
by $95.
5 6. Equity
decreases
by $95.
6
34
Balance Sheet: Increases your “Credit Card” liability and decrease “Equity.” When you
eventually pay the credit card bill, you’ll decrease Liabilities and Assets (checking).
By using credit cards, you are actually spending the money as soon as you make the charge.
Your credit card company is just paying the bill for you and allowing your business to pay
back later.
Quick Tip:
Many business choose to enter their credit card transactions several at a time, when they
receive their monthly statement.
34

35. 6. Tips and Advice
1. Getting Started
2. Helpful Resources
3. Online Resources
4. Congratulations!
35
Now it’s time to get started using what you’ve learned and also find out about where
you can get help if you need it.
35

36. Getting Started
Establish Good
Accounting 1. Build your toolkit
Habits
– Consider software packages such
1. Record as QuickBooks Simple Start
transactions (Trial Edition is available)
regularly 2. Structure your accounts
2. Accuracy and – Start with a minimum # of accounts
consistency are and add as needed
essential
3. Establish an accounting
3. Fix mistakes routine – and stick to it
as they happen
– Reconcile accounts monthly
4. Manage and – Update financial statements
reconcile bank quarterly
account regularly
36
Good accounting habits:
1. Record transactions regularly:
Buying/Expenses: bills, checks, credit, paying employees, contractors
Selling: estimates, invoices, sales receipts, collections
Purchasing: Managing and adjusting inventory
Credit card transactions (don’t forget these)
2. Accuracy and consistency are essential
Don’t classify many items as “miscellaneous”
3. Fix mistakes as they happen
Everyone makes mistakes, and they can be fixed.
4. Manage and reconcile bank account regularly
Always make sure your bank account records are up-to-date
36

37. Helpful Resources
Advance Your Knowledge
• Professional Help Expert help can make
– Accountants the process of setting-
• Look for knowledge of your industry up and maintaining
– QuickBooks ProAdvisors
• Expert set-up can save you time your books much
• Free 1-hour consultation easier. Be sure to look
– Small Business Development Center (SBDC)
counselors for a professional with
• Training Tools knowledge of your
– Take classes (either online or at local industry – and of
colleges)
– Attend local business seminars course, don’t be afraid
– Build a network with other business owners to ask for references.
– Use QuickBooks learning solutions
37
Help is available! You don’t need to go this alone.
•Class and coaching are a recipe for success. A Kauffmann Foundation study shows that
business owners who take classes—particularly 3 or more classes—are significantly more
likely to succeed.
•Don’t be afraid to seek professional help.
•A Small Business Development Center advisor or an accounting professional can help you
review your Chart of Accounts.
•SBDCs offer free counseling and low-cost training
•Many QuickBooks Pro-Advisors offer 1 hour of free consultation to get
business started on the right track
37

38. Online Resources
Small Business Development
Centers
www.sbdc.gov/sbdc
Internal Revenue Service
www.irs.gov/businesses/
small/
U.S. Chamber of Commerce
www.uschamber.com
Try QuickBooks Simple Start
Edition (Free Trial)
www.quickbooks.com
Find a QuickBooks
ProAdvisor
www.usequickbooks.com
/locateadvisor)
38
The SBA site offers news, online finance and management resources as well as
links to local SBA offices.
The IRS site is a good resource for what you’ll need to know for all taxation issues.
Includes forms and other resources.
The U.S. Chamber of Commerce site can help you locate a local Chamber of
Commerce.
And the Intuit QuickBooks site lets you evaluate if QuickBooks is the right tool for
your financial management needs.
38

39. Congratulations!
You now know:
• Why financial management is critical to
effectively run a business
• How to set-up and manage your accounts
• The usefulness of financial reports
Time to put your knowledge to work! Good luck!
39
39

40. Appendix: Additional
Terms and Concepts
A Simple Start to Managing Your
Business Finances
40

41. Financial Management
Terms and Concepts
1. Business types
2. Cash or accrual
3. Debits and credits
4. Journal
5. Ledger
41
We’ve taught you the basics to get started with good record-keeping. There is always more
to learn.
Here are a few terms and concepts you may run across as your grow your business.
41

42. Determine Your Business Type
1. Sole Proprietorship
• One owner
2. Partnership or Limited
There are more than Liability Corporation
23.7 million small • Two or more owners
businesses in the 3. S Corporation
United States. • Small business with one or
572,900 new firms more shareholders
are founded each 4. C Corporation
year. • Large business with one or
more shareholders
Source: SBA, Office of Advocacy.
5. Non-profit Organization
Based on 2003 data.
42
A study by Kauffmann Foundation suggests that the number of new businesses may even be
as high as 2.5 million. This larger audience may not be incorporated or registered.
Each type of business structure has advantages/disadvantages. Your tax accountant or other
business advisor may be able to recommend which structure is best for your business.
42

43. Choosing an Accounting Type
Cash or Accrual?
A. Cash accounting Choose whichever
• The practice of recording sales and accounting method
expenses only when cash is actually works best for you –
received or paid out
the important thing is
B. Accrual accounting to be consistent once
• The practice of reporting income when you’ve selected an
earned and expenses when incurred
accounting type
• Businesses with inventory (e.g.
retailers) must use this method
Most businesses opt for accrual
method of accounting
• At any given time, gives a more realistic
picture of the health of the business
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You need to understand the difference between these two methods of accounting so you’ll
know what to declare for tax purposes.
You may need to consult a business advisor or accountant to determine the correct method
of reporting for your business.
The IRS requires businesses with inventory (e.g. retailers) to use the accrual method of
accounting.
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44. Debits and Credits
Double Entry Accounting
You don’t need to be
too concerned with
• Accountants use “debits and the mechanics of
credits” to describe how double entry
transactions are recorded in accounting, debits
the general ledger
and credits, as
• Each transaction increases software programs
one account and decreases handle automatically.
another But as a business
• System balances itself owner, you might run
into these terms.
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45. Mark’s Atomic Graphic Design:
Journal
Journal
entries
capture all
cash in
and all
cash out
activity.
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46. Mark’s Atomic Graphic Design:
General Ledger
General
ledger
(GL)
shows all
activity by
account
type.
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47. Acknowledgements
Intuit would like to thank the following advisors
for their help developing this presentation:
• Peter Pappas, Regional Director,
Connecticut Small Business Development
Center, Groton, CT
• Neal Nelson, Counselor, Maricopa
Community College Small Business
Development Center, Phoenix, AZ
• Charles Eason, Director, Solano College
Small Business Development Center,
Fairfield, CA
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