“The balance sheet is often less useful for agency owners because they tend to be very ‘asset light’. It’s rarely used by freelancers, sole proprietors, and small agencies. Balance sheet: A statement that reports a business’ assets, liabilities, and shareholders equity in a given time.It’s mostly useful for agencies that incur costs at a different rate than they collect revenue. Cash flow statement: A report that shows the amount of cash entering and leaving a business.Credit: An entry that increases liability (e.g., salary), revenue, or equity accounts.Debit: An entry that increases asset or expense accounts (e.g., equipment, building).How to calculate: Net profit = Gross profit – Expenses Net profit: The actual profit you make after deducting your gross profit and expenses.How to calculate: Gross profit = Revenue – Total cost of services sold Gross profit: The profit you make after deducting the costs associated with providing services.Cost of services sold: The cost involved in selling services to clients (e.g., printing brochures, hiring contractors).Expenses: The money you spend on your business (e.g., software subscriptions, business events). Revenue: Income generated from your business (e.g., sales, interest income).profit and loss statement): A report that shows your revenue and expenses in a given time. Here are ten important terms to help you stay in the know: Bookkeeping alerts you to these financial boo-boos.īookkeeping 101: What Are The Basic Accounting Terms?ĭon’t let bookkeeping and accounting jargon let you down. (Psst… Wish there’s an affordable alternative for your favorite tool? We may have what you’re looking for - browse AppSumo’s lifetime deals here.) Maybe it’s a focus music app that you rarely use, or an expensive web hosting service that you can do without. No bookkeeping, no financial statements, no loan.Īre you paying for unnecessary products or services? Look at your books and start canceling those subscriptions. Need a business loan to expand your business? Banks tend to look at your income statement, cash flow history, and income tax returns when reviewing your application. Without recording these transactions in your books, you’d forget to reclaim that hard-earned money. But what are the other benefits of maintaining our books? Here are three additional reasons why you should make bookkeeping a habit.ĭid you know that you can deduct tax from the software you bought for your business? #mindblown Every little counts. This we know: Bookkeeping gives us a clear picture of where our money is going to and coming from. Simply put, one’s administrative, the other’s analytical. The greatest distinction between these two lies in its goal.īookkeeping records financial transactions, whereas accounting analyzes the financial health of a business based on those records. Many beginners often mix up bookkeeping with accounting, but these two fields couldn’t be more different. Bookkeeping vs Accounting: What’s The Difference? That way, you’ll always know what’s happening in your business and make the best financial decisions. Think of bookkeeping as an accountability buddy - it tracks your daily income and expenses and holds you accountable at managing your money. Here’s what you need to know when it comes to the fundamentals: What Is Bookkeeping? To make it as painless as possible, I’ve kept it short, sweet, and to the point. It’s overwhelming trying to master a dull topic like bookkeeping.
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