Accounting

 Every business owner should know these key accounting principles that keep your books accurate and compliant  

• Economic Entity Assumption – A business must be treated as a separate entity; personal and business finances cannot mix.
   
• Reliability Assumption – Only transactions with verifiable documentation (receipts, invoices, statements) should be recorded.
   
• Full Disclosure Principle – All relevant information affecting investors or lenders must be disclosed in financial statements or notes.
   
• Conservatism Assumption – When uncertain, record potential losses but not potential gains.
   
• Materiality Principle – Minor discrepancies that don’t affect accuracy may be disregarded (e.g., rounding).
   
• Consistency Principle – Once an accounting method is adopted, it must be used consistently unless a better one improves reporting.

• Monetary Unit Assumption – All financial records use one stable currency (e.g., USD), ignoring inflation.
   
• Going Concern Assumption – Financial reporting assumes the business will continue operating unless evidence suggests otherwise

 The Chart of Accounts (COA) is the foundation of your bookkeeping system — it’s like a map that shows where every transaction belongs. 

•  Assets: what your business owns (cash, bank accounts, equipment

• Liabilities: what your business owes (credit cards, loans)

• Equity: your owner’s investment or retained earnings

• Income: your business revenue and sales

• Expenses: your operating costs (rent, utilities, software, etc.)

 Every account type in bookkeeping has a normal balance — either a debit or a credit.
Understanding this helps you read reports and spot errors quickly. 

           Account Type           Normal Balance

           Assets                         Debit

           Liabilities                    Credit

           Equity                         Credit

           Revenue                     Credit

           Expenses                    Debit 

Quick Check:
If you ever see an account with the opposite balance (for example, a negative asset), it may indicate a mistake or misclassification that needs fixing.

Financial reports turn your day-to-day bookkeeping into a story about your business performance. They show where your money comes from, where it goes, and how healthy your business really is. 

Shows your business income, expenses, and net profit for a selected period.
Use it to measure performance month-to-month and identify spending trends.

Key insights:

• Total income and cost of goods sold (COGS)
• Operating expenses
• Net profit or loss

 Tip: Review this report monthly to see whether your revenue covers your costs and to plan for tax payments 

A snapshot of what your business owns, owes, and is worth at a specific date

 Formula:  ASSETS = LIABILITIES + EQUITY

 Why it matters: It shows your financial position — whether your assets are growing, debts are manageable, and equity is building over time 

Tracks the movement of cash in and out of your business.
Even profitable businesses can run into trouble if cash flow isn’t managed.

Sections include:

• Operating Activities (day-to-day cash inflows/outflows)
   
• Investing Activities (purchases or sales of equipment)
   
• Financing Activities (loans or owner withdrawals)
   

💡 Tip: Always ensure positive cash flow from operations — it keeps your business running smoothly.

 🔍 What is Reconciliation? 

Reconciliation compares your business bank and credit card statements with what’s recorded in your books.  It’s one of the most important bookkeeping tasks every month. 

The goal: your ending balances should match exactly. 

When you reconcile, you:

• Confirm all deposits and expenses are recorde
• Catch duplicate or missing transactions
• Detect bank fees, interest, or fraud early
• Ensure your reports (like Profit & Loss) are accurate
   

💡 Tip: Always reconcile each account every month right after your bank statement closes.