My Accounting Blog

Accounting Basics

Accounting can be a daunting task, if you do not have the budget to have a full time accountant.  There are several principles one should acquaint oneself with regards to accounting whether you own a business or not. Achieving an understanding of accounting saves a great deal of time and money both for small business owners and individuals.The crux of any effective accounting  system is debits and credits. Understanding debits and credits is understanding an entire accounting system, where debits should equal credits. Every entry into the account ledger should have both a debit as well as a credit, if these two do not balance, there is an issue.Automated software should not let you input something out of balance. These are generally accompanied by a beep, where the software asks you to change an entry. Every increase in one area is accompanied by a decrease in another area. That is what balances the entries.Assets and their identification is an important tool in accounting. Assets are things of value you or your company own, such as equipment or cash in a bank account. Assets also include objects, such as a company vehicle and rights and claims an entity may have are also assets. With intangible assets such as rights and claims the value is whatever the parties involved have decided the value to be. If two parties have decided that the rights or claims to intellectual property is %10, the value is %10 of profit. Identifying liabilities is also straightforward. Liabilities are the opposite of assets, they are obligations of one entity to another, like bills. Thing such as accounts payable are liabilities, because they represent you or your company’s future obligations. Think of  liabilities as credit card bills, which need to be paid off, or even a mortgage. Liabilities come in two forms, short term and long term. Short term liabilities are things which can be paid for in a few payments. Long term liabilities are generally major investments such as a car or mortgage. Owners equity in the case of business is what money is earned, basically the owner’s check. This is the difference between assets and liabilities which is hopefully positive. So if assets exceed liabilities it can be said a business has positive equity. This term has also been used in housing markets, notating that the worth of a structure has risen over time. These are only a few of the basic ideas and principles of accounting. Reading on these is an important first step toward understanding how to keep track of money for your business.

One of the great things about the modern age is the computer. Computers are great because they are able to run about any kind of software a person can invent. Out of the many software options available to the average computer user, one of the most useful is accounting software. While there is no doubt that accounting software has some great benefits, it can be very difficult choosing the right one for you. Each accounting program claims to be everything a person needs. However, some have more than a person needs and others have less.  One of the main things to think about as you look at various accounting programs is what you need it to do. If you are simply looking for something to help you track expenses, you do not need software that provides the ability to track multiple income streams. On the other side, if you run a business, or multiple businesses, you need more than just an at home program. Your best bet is to buy a program that has what you need as well as a couple of extra's.  Once you know what you need from accounting software you will want to start doing some research. Websites such as Amazon.com have user reviews on most accounting programs. You can use these reviews to get a good idea of what to expect from a particular program. Another thing you might want to do is ask friends and neighbors about their experience with various programs. As you do this research you should get a pretty clear picture of what each program can provide.  Chances are that even after you finish your research, you will have more than one program to choose from. This is when you get down to price point. However, instead of going with the cheapest software take some time to evaluate value. Ask yourself if the more expensive option provides more useful tools or if the cheaper one has solid customer service. These small questions will make the difference.  After the above things have been considered, the final step is to purchase and install the software. Once you begin using the software there are some important things to do. Make sure you set up a security setting to keep your information private. Write down important numbers or store them somewhere they won't get lost. Also make sure to register your product. This takes time, but if you ever need to make a customer service call you will be glad you did.