Accounting and Bookkeeping
- How much do I need to know about accounting and bookkeeping?
- Why are financial projections necessary?
- What is a balance sheet?
- What is an income statement?
- What is a cash flow statement?
- What is equity?
- What is capital?
- Is it better to lease or buy the store (plant) and equipment?
- Should I hire a CPA?
1. How much do I need to know about accounting and bookkeeping?
Since numbers constitute the language of business, the more you know about this language, the more you will understand your business, and the better-informed your decisions will
be. At a minimum, you should understand your bookkeeping system. This means you should understand how your money is spent and how much money you have coming in. You should also be able
to read and understand basic financial statements, including the balance sheet and cash flow statement.
2. Why are financial projections necessary?
Financial projections are estimates of future business activities. By estimating the future, you have a target or goal to work for. Even if the projections are not accurate, you
will have a frame of reference to follow.
3. What is a balance sheet?
Often referred to as the basic business financial statement, the balance sheet shows three things about a business: assets, liabilities, and owner's equity. Assets are things that
are owned by the business. Liabilities are things that are owed to others. Owner's equity is the difference between assets and liabilities.
4. What is an income statement?
An income statement, often called profit and loss statement, or P&L, is the scorecard for business. It shows the revenue, expenses, and profit or loss for a period of time,
usually a month, quarter, or year.
5. What is a cash flow statement?
The simplest form of cash flow statement shows the timing of cash receipts coming into the business and cash payments being made. You don't record any transactions until there is
an exchange of cash.
6. What is equity?
Equity has two different, but related meanings. It can be the money that the business owner invests in his/her own business. Equity also means "net worth," which is the difference
between the assets and liabilities of a business. It is the portion of the assets that the owner would get after all the liabilities are paid.
7. What is capital?
To operate any type of business, you may need equipment, tools, office equipment, vehicles, computers, or other items. These assets are purchased with cash, usually referred to as
capital.
8. Is it better to lease or buy the store (plant) and equipment?
This is a good question and needs to be considered carefully. Leasing does not tie up your cash; a disadvantage is that the item then has no resale or salvage value since you do
not own it. Careful weighing of alternatives and a cost analysis will help you make the best decision.
9. Should I hire a CPA?
You can get accounting advice from different sources. A certified public accountant (CPA) is probably the most competent professional to guide you in many different areas.
Others, such as public accountants, bookkeepers, and specialists who focus on small business record keeping, can also be useful. CPAs are usually the most expensive, but may still be
the best value because of their breadth of knowledge and their ability to assist you with all aspects of your business finance, accounting, and tax issues.
service of
Penn State
This site is a product of Penn State Outreach Marketing and Communications.
Web site questions? E-mail WebInfo@outreach.psu.edu.
Privacy and Legal Statements | Copyright © 2009 The Pennsylvania State University