Introduction to Small Business Accounting Training Tutorial

Explore the difference between accounting and bookkeeping by defining the big picture systems and daily transaction recording. Learn how accounts receivable, accounts payable, payroll, and taxes fit into financial reporting.

Choose a consistent accounting method—cash or accrual, and any gaap-compliant hybrid methods—to accurately reflect income and expenses and consult with an accountant.

Identify the tax year as a calendar year or fiscal year, 12 months. Learn when to use calendar year and how to request IRS approval.

Explore the chart of accounts, including asset, liability, equity, income, cost of goods sold, and expense categories. Learn numbering ranges and naming practices across QuickBooks, Peachtree, and Excel.

Explore the asset side of the balance sheet, distinguish current and non-current assets, and understand that asset totals equal liabilities and equity totals.

Understand cash accounts as current asset accounts, including checking, savings, and petty cash, tracked for value and shown at the top of the balance sheet.

Understand how accounts receivable records amounts owed from sales on credit, typically 30 days, and how rising sales or longer collection periods affect AR balance.

Learn how inventory value, cash flow, and the inventory cycle affect profitability by managing ordering, production, and delivery phases.

Notes receivable records loan payments owed to the company, often as promissory notes from customers, employees, or officers; officer borrowing reduces net worth and invites bank scrutiny.

Identify other current assets such as prepaid expenses maturing within the next year. Include prepayments, deferred charges, and amounts due from parent companies and subsidiaries in this catchall category.

Identify fixed assets as long-term, worth at least $100, such as land, buildings, machinery, and office furniture. Depreciation records purchase price and builds accumulated depreciation to determine book value.

Explore how the intangibles asset account records cash spent on nonphysical assets with undetermined life, such as research and development, patents, goodwill, expensed at purchase; patents may be amortized.

liabilities are debts on the balance sheet, including current liabilities due within one year and the current portion of long-term debt.

Explore accounts payable as the liabilities for vendor bills for inventory and services, with due dates of 30, 60, or 90 days and timely bill entry.

Record accrued expenses payable when obligations arise in one period but are paid later, using adjusting entries under accrual accounting, often alongside accounts payable in current liabilities.

Businesses use notes payable, promissory notes with short-term maturities, to finance inventory and seasonal needs, paying on demand or by specific dates, with interest recorded as accrued expense payable.

long-term liabilities are loans due after twelve months; the current portion appears with current liabilities, while promissory notes and the non-current portions are listed separately on the balance sheet.

Officer loans are notes payable from officers or owners, representing cash lent to the business; banks may subordinate or classify standby loans as equity, reassuring lenders and balance sheet interpretation.

Identify contingent liabilities as potential, not on the balance sheet, listed in footnotes, including pending lawsuits, warranties, and cross guarantees, and explain how they may impair future obligations.

Explore equity as the residual claim on assets, including retained earnings, owner investments, and dividends, and learn how equity varies by entity type from sole proprietorships to corporations.

Explore how the income statement shows what was earned versus spent, using income accounts to track sales by product or service, as shown by the floral shop example.

Analyze a company’s expense accounts on the income statement to track money spent, avoid miscellaneous accounts, and use a chart of accounts to categorize expenses, generate reports, and guide pricing.

Keep accurate financial records to monitor your business's financial status and cash flow, support sound decisions, and prepare tax returns.

Learn to price products and services so that prices cover direct costs and overhead, including loans and job charges, using the full cost equation to protect profit.

Calculate profit as net income by subtracting total expenses from gross sales and monitor financial data to spot trends early and avoid losses.

Track cash inflows and outflows to manage cash flow and understand its relationship to profitability. Analyze the operating cycle from inventory purchase to cash collection to forecast future cash flow.

Develop a long-term banking relationship by selecting a suitable financial institution, understanding service variations, and coordinating with a banker to manage cash, loans, and investments.

Establish a consistent record-keeping system with receipts and a general ledger for all business transactions. Maintain a dedicated business bank account and a tax calendar to avoid penalties.

Identify expenses by assigning purchases to the correct expense or cost of goods sold account, such as utilities or inventory, and mark bills with account numbers for consistent bookkeeping.

Explore double-entry accounting in common software like QuickBooks and Peachtree, including checks to vendors and journal entries, ensuring debits equal credits and transactions balance.

Learn how accrual accounting records revenues and expenses in the period they are earned or incurred, and explore prepaid expenses and salaries earned versus paid across periods.

Explore how prepaid expenses and accrued liabilities reflect when expenses are paid versus incurred, using rent prepayment and commission accruals with journal entries.

Recognize accrued revenues by applying the accrual principle, recording revenue when earned at sale or over a prepaid period, using cash, deferred rent, and accounts receivable entries.

Apply the matching principle to ensure revenue and expenses are recorded in the same period, as shown by a computer consulting example.

Record adjusting entries at period end to update accounts under accrual principle, using prepaid rent as an example, and enable recurring adjusting entries in software such as QuickBooks or Peachtree.

Learn how accrual accounting records revenue when a sale occurs, manage accounts receivable from invoicing to payments, and use QuickBooks, Peachtree, or Excel to track and reconcile accounts.

Learn how to handle bad debt by crediting accounts receivable and the customer's account and debiting bad debt expense for the same amount in QuickBooks, Peachtree, or manual journal entries.

Record bills as accounts payable, a liability, and track expenses on an accrual basis. Compile monthly listings and pay bills to reduce cash and accounts payable.

Explore payment discounts in small business accounting, including 1% or 2% off within 10 days, and record discounts by debiting accounts payable and crediting cash to cash discounts income account.