Accounting Solutions for Small Business

Accounting plays an important role in the success of every business. Companies create and maintain accounting systems for many reasons. By implementing the correct type of accounting system for your business, you will be able to measure the financial position of your company, keep the finances of the company organized, and responsibly report your finances to the Internal Revenue Service and other taxing authorities. Without an accounting system, you would be unable to make informed decisions about investing in your company, operating your company, and financing your company. Accounting systems help your company to grow and become profitable.

The easiest way to begin to understand accounting systems is to learn one equation. This equation is known as the basic accounting equation and states that assets are equal to liabilities plus stockholders’ equity. Assets are everything that is owned by the company, liabilities are what is owed to creditors, and stockholders’ equity is the amount of assets the owners of the business have claim to. This equation must always be in balance, meaning if there is an increase in assets there must also be an increase in liabilities or stockholders equity, and so on.

Companies present financial information using financial statements. There are four basic types of financial statements: income statement, retained earnings statement, balance sheet, and statement of cash flows. Each of these four statements present information on the current or past financial position of the company.

The first type of financial statement is the income statement. Companies use the income statement to determine their net income or loss for a specific period of time. They do this by listing first all of their revenues and then expenses during that time. Their net income (or loss) is reached by subtracting the total amount money the company spent (expenses) from the amount of money they earned (revenues). If this number is positive,...