Properly Identifying Business Transactions
Updated: May 30, 2018
As a small business owner, you naturally want to spend most of your time focusing on building your business. Unless that business is accounting, at some point you are probably going to need outside help with your books. Accounting may seem like a foreign language to many people. They know it’s important but they don’t know exactly how to integrate accounting processes into their business. Many small businesses start as a family owned business. This may mean the business owner or a family member is drafted into the role of bookkeeper. This usually involves writing checks and issuing invoices. Keeping up with and reconciling these transactions can seem like a daunting task to someone who is unfamiliar with accounting software and the management of cash flows.
In my last blog, I pointed out that accurate and timely financial information will allow you to maximize your company’s growth potential. This week I would like to introduce you to one of the processes involved in accounting. Accounting is used to identify, record, analyze and reconcile your company’s financial information. As a small business owner, you are probably only familiar with the first two of these functions. Most people understand that anything to do with transfers of money either in or out of their business needs to be recorded. However, there are other transactions that occur in your business that also need to be identified and recorded that do not involve cash receipts or payments.
Basically an accounting transaction is any exchange of economic consideration that can be measured which affects the financial position of your business. I have listed several different examples of business transactions below.
· Recording customer sales in cash or on credit
· Receipt of payment for invoices owed by a customer
· Payment of vendor invoices
· Payment of employee wages and salaries
· Accrual and payment of employment, state and federal taxes
· Purchase of fixed assets
· Recording depreciation of fixed assets over time
· Purchase of goods for resale
· Purchase of supplies for manufacturing
· Transfer of supplies for manufacturing to work in process and finished goods
· Borrowing funds from a lender
· Recording interest on a loan
As you can see, there are many different types of transactions. Right now you may be wondering how to make sense of it all. Here at BookSmart Accounting we are ready, willing and able to help you do just that.