Many entrepreneurs and small business owners are masters at creating exceptional products and services, winning over clients and building great teams.
However, bookkeeping is far from their biggest strength.
Being familiar with the different types of bookkeeping accounts is usually overlooked, but it is vital for gaining clarity on your business finances.
Mastering your own books helps you prevent any potential cash flow issues before they lead to bigger problems within your business.
Therefore, here are some of the common types of bookkeeping accounts that every business owner should understand more about:
Cash
This is the cornerstone bookkeeping account. All your transactions pass through the Cash Account.
As such, bookkeepers have to use two journals to track the activity due to the high level of importance.
These journals are Cash Disbursements and Cash Receipts.
Inventory
Your business inventory is an asset that ideally utilises cash. It is therefore important to keep accurate accounting of your inventory.
Apart from tracking inventory in the books, make sure you validate the numbers with actual physical counting of the stock.
Accounts Receivable
If you sell products or services and don’t collect payment immediately, then you have receivables that should be tracked using accounts receivable.
This is money due from clients and keeping it up to date is vital to ensure that you send accurate invoices or bills in a timely fashion.
Accounts Payable
This a bookkeeping account that gives you clarity on how much money you owe other businesses or individuals.
It helps you monitor payments due, allowing you to pay on time and avoid making the same payment twice.
Keep in mind that late payments usually lead to penalties that can lead to additional costs and a negative impact on your credit score.
On the other hand, early payments can ideally result in discounts which reduce your expenses.
Purchases
This is an account that lists the items you’ve bought for your business like raw materials and other equipment.
It is another vital aspect to recording your profitability as you need this to calculate the cost of goods sold.
You can then calculate your gross profit by subtracting the total cost of goods sold from your sales.
Sales
Keeping an accurate record of all sales transactions is imperative as it tells you how well your business is doing financially.
The information from this account can also help you create new strategies that are essential for reaching targets and keeping business operations running smoothly.
Loans Payable
If you have borrowed money from financial institutions to purchase equipment, furniture, vehicles and other items for your company, this account tracks what is owned and what is due.
Payroll Expenses
For most businesses, this is the biggest cost. Keeping this account up to date and accurate is vital for meeting tax and other reporting requirements.
Overlooking such responsibilities can have a negative impact on your business.
Most business owners and entrepreneurs think of bookkeeping as an unappealing chore.
However, if you understand and make proper use of the data that the bookkeeper collects, it can be your best friend, helping you run the company more effectively.
Are you looking for a trustworthy and reliable bookkeeping service at reasonable prices? If so, then look no further than Numbers Pro.
If you are looking for a blend of truly personal service and expertise, please call us today on 03 9510 2120 or contact us through our website https://numberspro.com.au/contact-us/
