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BOOKKEEPING SERVICES - ORLANDO
CLICK HERE FOR DETAILS OF THIS SERVICE AT FAJARDO & ASSOCIATES IN ORLANDOBased on the rules of the IRS, a business with annual gross sales of less than $5 million can use single-entry accounting. This method only records cash transactions. It does not track the amounts given or received on credit. This method works for new, small, and less complex businesses, such as not-for-profit organizations (NPOs) and sports clubs. These companies are not responsible to shareholders, or where the primary focus of doing accounts is not measuring profits.
Double-entry accounting is the preferred method of bookkeeping because of the following reasons:
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It provides accurate and reliable financial data and shows a complete view of business transactions.
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It prevents errors by recording every transaction in at least two accounts. This makes it easier to identify mistakes and correct them. It also reduces the risk of inaccurate financial performance reports.
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It makes taxes easier to file and less likely to include errors as all data is accessible in one place.
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It makes it easier to prepare balance sheets, income statements, and budget reports for businesses.These reports are all critical in making informed business decisions.
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It helps secure funding from lenders or investors who usually ask for detailed financial reports before extending credit.
Debits and credits: The foundation of double-entry accounting
You may associate debit with a reduction in your bank balance, and credit with the addition of money in your account. But when it comes to bookkeeping, whether a debit or a credit will increase or decrease an account balance depends on the type of account you are dealing with.
Most small businesses use five basic accounts to record financial transactions. They cover all aspects of business activities and make using the double-entry accounting method easier. They include:
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Assets to record anything owned by the business, such as cash, machinery, property, and outstanding payments owed to you.
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Liabilities to record anything owed by you to other individuals or institutions, such as loans.
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Equity to record ownership interest in the business, such as shares sold to investors and proportion of profits reinvested in the business.
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Revenue to record income earned by business through sales, services, or interest.
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Expenses to record costs incurred to generate revenue, such as rent and salary.
Beyond this, you can have other types of accounts (or sub-accounts) within this overall chart of accounts, depending on the number of transactions or your business needs. One example is accounts receivable under assets.
To understand what to debit and credit, remember the three key rules:
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A debit is always recorded on the left side of a transaction and a credit is always recorded on the right side.
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For asset and expense accounts, you debit to increase them and credit to decrease.
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For liability, equity, and income accounts, you credit to increase and debit to decrease them.
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Orlando ACCOUNTANT - CPA Orlando
Certified Public Accountant and Tax Expert Serving Orlando, Florida.