Basics of Accounting for Beginners in 2022

Basics of Accounting is something every business owner should know.

Often, small business owners are afraid of the bookkeeping and the associated effort. Everything is not that difficult. If you want to learn just the basics you can be safe from any tax problems in the future. Need more info on this? Continue reading.

Let’s see answers to the most common questions about the basics of accounting.

Basics of Accounting for Beginners in 2022

What does accounting gives me?

Quite simply: When you keep the bookkeeping, you document all business cases that affect the finances of your company. From writing invoices to your customers through to paying taxes: You record all monetary transactions within your individual/company environment. Thanks to the bookkeeping, you have an overview of the economic situation of your company. And unfortunately, this is not a choice, everyone has to do it.

In some countries, people who pay their taxes in a timely and exact manner will often get rewards from the government. So if you want to be a disciplined taxpayer there are some benefits to it. But most countries will also give severe punishment to people that don’t pay their tax. By doing accounting as soon as you can you will avoid the trouble. 

Who has to do accounting?

Everyone who has reached the income limit to be taxed in their respective needs to do accounting. So unless you are 13 years old or jobless you probably need to do accounting one way or the other. The range will differ from country to country so make sure you know the rules in your country before continuing any bookkeeping efforts.

What about if you are a small business owner with lower sales? For them there is the possibility of a simplified bookkeeping: These companies limit themselves to keeping a pure income-expenditure account (with a cash book or milk booklet). Is it a hassle since you are not a multi-million company yet? Yes. Does the government care about that? Probably not.

Even for companies that are not subject to bookkeeping, doing so will make their accounting process easier when it comes to end-of-year tax return or anything else that needs a record of expenses and cash flow. Nothing more annoying than doing the numbers right before New Years. Save yourself some time and begin accounting today instead.

Double bookkeeping: Because double is better

It is often used, but double-entry bookkeeping is rarely explained: Double-entry bookkeeping is used when every business transaction is recorded twice. So two accounts are affected for each posting. An example: you buy goods and pay in cash; this means you have more inventory (debit) and less in the cash account (credit). In accounting jargon, this means debit is posted to credit.

But what is the point of double bookkeeping? Thanks to it, you can show both a balance sheet and an income statement. This means: You can see where your money comes from and where you have invested it by comparing assets and liabilities on the balance sheet. Thanks to the income statement, or IS for short, you can see whether you have made profits or losses by comparing your income with your expenses.

How can I keep accounts?

Unless you are taking the CMA Exam then bookkeeping doesn’t have to be complicated and time-consuming, you can use an online accounting software to write an offer with just a few clicks and send it to your destination.

Freelancers and field workers will usually note their expenses and carry out the work on-site or at home, they then create the invoice of their work and send it by email. The correct postings in the accounting are made automatically; tax is also billed correctly. So the bookkeeping almost takes care of itself.

Conclusion

Keeping tabs on your spending and doing accounting is not the most fun way to spend your day. But unless you live in a tax-free country then like it or not you will have to do some accounting on your part. So instead of waiting for the tax people to come why not just start now?

With the emergence of online accounting software, keeping accounts on your cash flow is easier than ever. You can try some of that software for free and see if any of them fits your needs. However, there is nothing that can replace a reputable accountant when it comes to big dollars. So when your income/profit is in a range where hiring a personal accountant is affordable, please do so.

But if you are like me and you are (most of the time) strapped for cash, then using a free software is the way to go. I use money lovers to track my income and expenses every month. In a perfect world, I would update my expenses every day but sadly I can’t be bothered to do that yet. Hopefully soon in the future!