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If you have the intention to run a company – small or big – one day, you will have to be familiar with the financial terms and procedures.
By learning these business finance basics, you’re one step ahead in understanding the overall business and your role within. To keep their companies profitable, business owners should have a solid understanding of the principles of finance.
Revenue and Expenses
Revenue is used to describe the income earned through the sale of goods and services to customers. Expense is then the term to describe a cost incurred in the process of producing or offering a service.
Every transaction should be recorded. How much is coming in, how much is going out as well where is it is all coming from and going to.
Cash Flow Statement
One of the most useful financial management tools, Cash Flow Statement shows you how cash is flowing in and out of a business.
It is important to record the cash your business expenditures so you’ll have an accurate number of expenses each year. Keep detailed petty cash records too when you record cash expenditures.
Inventory
Recording your inventory is like checking your company’s stock. You should record information such as dates purchased, stock numbers, purchase prices, dates sold, and sale prices.
Documenting your inventory will help you to forecast for the upcoming trends and minimize inventory costs because goods will only be are created or received when needed. Inventory record also prevents stealing and misplacing goods.
Accounts Receivable and Payable
Accounts payable are amounts that a company owes because it purchased goods or services on credit from a supplier. Accounts payable are liabilities.
Accounts receivable are amounts that a company has a right to collect because it sold goods or services on credit to a customer. Accounts receivable are assets.
Make sure you keep track of what customers owe you and the debts you owe others too. Record as much data as possible including invoice dates, numbers, amounts paid or due, dates and client information.
Payroll
A payroll is a company’s list of its employees and the term normally refers to the total amount of money that a company pays to its employees, records of employees’ salaries, wages and bonuses.
Preparing for Tax Time
Once you have your finance in order, preparing for taxes should be easy. With your books in order and organized, you will have accurate records and receipts for calculations. This will indeed save you the hassle from having to go back figuring things out.
