One of the most feared as well as least understood systems in a business is the system of bookkeeping or accounting. The reason for this could be that most people are apprehensive of the work involved in setting up such a system and the monotony of plugging in daily inputs to keep the system alive.

But if you look at it closely, there is nothing too complicated about bookkeeping. It is just like maintaining a personal diary or your check book. To put it simply, it is nothing more than keeping a tab on your income and expenditure on a daily basis.

The first step to get going is to open a business account for your new business enterprise. This is a simple procedure involving your requesting the new accounts teller at your local bank for a new business account and sent the new account registration fee to the relevant commissioner. You are ready with your new business account with freshly imprinted checks.

The next step is to pick up a note book with loose leaves and a supply of paper. It is also a good idea to use index tabs which separate the months or even to create separate accountings for all the items you sell.

What you do at the end of the month is to transfer this daily information to one of the cheap bookkeeping registers from where your tax consultant or accountant can work. These professionals usually do not work with your daily register but would rather take information from the official bookkeeping registers. They will not even transfer the information on your behalf. If you ask them to, then charge a hefty fee to do this. It is truly no big deal, and spending a few minutes on the last day of the month, you could transfer the details yourself. When you are preparing to pay your tax returns, simply hand over this bookkeeping register to whoever is compiling your tax liabilities and you are free.

The bookkeeping register need not be anything complicated, the simple “Economic Register, Form RL-17″ columnar note book which are commonly used can suffice your needs. Such registers are available in a variety of styles and sizes from Economic Systems-PO Box 11413-Tacoma, WA 98411. You essentially need a notebook with columns demarcated. Put a title on top of each column to represent the money transactions related to that product or services as specified by the column. At the end of the month simply add up whatever figures appear in the column and you will know in a moment how much money you made against each of the products or services that you are dong business with.

After the date column record the expenses or the money spent. Put a title on top of each column and insert the figures which are relevant to that head. At the end of the month, simply add up the figures and you will know your total monthly expenditure. When your expenses are more than your earnings, obviously you are running at a loss. The vice versa is true to know how much profits you have made in a month.
The two important points to remember is that bookkeeping or accounting can be kept simple and uncomplicated when all you do is to go on recording your business activities and keep the book updated.

The stock holder’s equity has two components: contributed capital and retained earnings.
The money which each stock holder puts in to the running of the company’s business is called the contributed capital. This amount is usually divided into two segments called ‘par value’ and ‘additional paid in capital’. The retain earnings are amounts of money which are earned by the stock holders through the running of the company, but are kept aside by the company for future investments.

These earnings can get affected by three primary factors which are revenues, expenses and dividends.
Revenues and expenses are terms used to denote increase and decrease of stocks which come from the business operations whether it is online or offline business. The operating expense of an online business could be the expenses incurred for domain name and web hosting if you own websites.

Another example of revenue is when a customer is agreeable to pay the company for services to be rendered in the future. This amount is denoted as accounts receivable in the asset account which can show an increase in the asset value but a decrease in the stock holder’s amount of equity.

When the company agrees to provide services in the future, this is treated as an expense however.
This results in a decrease in asset value and increase in liabilities. Instances where revenues are more than expenses, the value is called net income. On the other hand, when the reverse happens, that is, expenses overshooting the revenue, it results in net loss. This is an indicator that you are in for trouble as your business costs are going beyond what you can earn from the same business.

When you barter your past earnings amongst the stock holders, it is called paying dividends which is distribution of assets. Dividends are not to be confused with expenses as both are diminishing the amount of retained earnings. Financial statements are ways of informing the people who have some stake in the business, regarding the performance of the business.

Financial statements can also be viewed as business models which show how a business is performing financially. But just like any other process, financial statements are not without its share of flaws.
Statement of income, of retained earnings, balance sheet, and the cash flow statement are the four main types of financial state which a business can have. An income statement summarizes the money the company has made as well as the expenses it has incurred to make that money. According to accountants, this is the most important financial statement as it shows whether the company has met its financial goals.

The statement of retained earning which shows the amount of retained earning within a stipulated period. The retained earnings will be nil when the company started out during a particular financial period.
Many companies treat the stock holder equity statement as the statement of retained earnings. This is a more detailed statement which not only tells you about the different aspects of retained earnings but also any alterations in the stock holders’ equity scenario. The month or yearend financial status of acompany is shown through its balance sheet. This statement at a glance can tell you about the value of the business in terms of their assets and the corresponding claims against those assets which are the liabilities. The cash flow statement indicates the health of liquidity of a company. These depict the inflow and outflow of cash of a company. The difference in the inflow and outflow is the net cash flow. The statement shows the money generated by doing the business as well as details regarding any investment or financing transactions that may have occurred during a particular accounting period.

The financial status of any company is measured by the amount of resources it has along with any claim to those resources the company may have. Claims are also known as equities. So the company financial status would be its economic resources plus the equities, which can be of two types irrespective of the nature of business. These are creditor’s and the owner’s equity. Economic resources are thus made up of two components: creditor’s plus owner’s equity.

In accounting terms, the owner’s equity is also called their ‘assets’ and the creditor’s equity is known as the company’s ‘liabilities’. So the standard accounting equation stands at: Assets=Liabilities + Owner’s Equity. As in any equation, both sides of the equation have to be equal. This equation is important if you wish to analyze the financial health of your company through its daily business activities.

Let us look at an important financial aspect of any business. Assets of a company are its economic resources from where they can earn income in the future. An example of this is real estate or any other property which the company owns, which they can rent out if they want. If the company is owed money, then it is entered under a heading, called accounts receivable, which is purely monetary in nature. However, there are many assets which a company may own which are not tangible or physical in nature. Copy rights, trademarks and patents are some examples of this type of assets which are equally valuable as an economic resource.

Liabilities on the other hand are business obligations which a company carries. Examples are cash payable, providing various types of services to individuals or transferring their assets to another entity. These are known as debts of a company or the money they owe to the market or can owe in future. Legally speaking, having a lot of debts, liabilities and claims are not viewed favorably by any authority as it reflects directly on the financial health of the company. By law the creditors or the people/entity who the company owes money can push the company to sell off its assets if their dues are not paid on time. Creditors yield a lot of power over the owners of the company as they have to be paid their dues in advance, even before the owner has received money. In fact, sometimes a situation may arise that the debts are so high that it eats into the all of company’s economic resources.

Owner’s equities are claims which the business owners make on their own assets. The residual interest is the balance assets of a company which is available after deducting the entity liability amount. Hence the owner’s equity equation is: Owner equity=Assets-Liabilities. When it is a corporation, the owner’s equity can also be referred to as stockholder’s equity. So the equation changes slightly reading as: Assets=Liabilities +Stockholder’s Equity.

Dividends, revenues and expenses are three types of transactions which influence retained earnings. Revenues and expenses are directly linked to the stocks going up or down respectively. Irrespective of the nature of business revenues and expenses occur while running the business. For instance, when you own websites and run an online business, your operating expenses would be web hosting or domain name. Another example is when a customer decides to pay you for a service which you are going to provide in the future. This amount is put under the account receivables or the asset account. This increases the asset value but reduces the stocks holder’s equity. However when the company promises to provide a service in the future it is regarded as an expense. In such a case, the accounts receivable or the asset value goes down and the liabilities or the accounts payable increases.
When the revenues are more than your expenses the resultant difference is your net income. But when the expenses are more than your revenues, it is called net loss. This figure shows that your business is not incurring any profit. On the contrary, it costs more to fun your business than your earnings are. Dividends are distribution of assets amongst the stock holders with relation to past earnings. Dividends and expenses should not be mixed up as they are separate entities, though both result in a reduction in the amount of retained earnings. Therefore retained earnings signify the net income less the expenses. The financial statement of a company gives vital information about the financial health of a company to people who have some sort of interest in the running of the company. This can also be viewed as a business model which reveals the financial health of a company.

Though the financial statement is not without its share of flaws and drawbacks, there are four main financial statements, which are: income statement, the retained earnings statement, the balance sheet, plus finally the cash flow statement. The income statement summarizes the revenues and the expenses incurred. Most accountants believe this to be the most important statement as it details the financial health of a company and tells you whether the company has been able to meet its business goals in terms of profitability. The retained earning statement displays the details of retain earnings over a fixed time period. When the statement shows zero retained earnings, it pertains to the time when the company started its business at the beginning of the accounting period.

Many companies use the retained earning statement in lieu of the stockholder’s equity statement. This is a far detailed statement as it not only shows the retained earnings but also brings forth any change or alterations which could have taken place during the accounting period in the accounts of stockholder’s equity. The balance sheet is a statement which is prepared every month or year end and shows the financial situation of the company. It shows the value of the business in terms of its assets as well as the claims or liabilities which those assets attract in the stock holder’s equity. The company’s liquidity status is displayed by the cash flow statement. The amount which is obtained after deducting the cash outflow from the cash inflow is the net cash flow. The cash flow statement shows the money the business has made as well as the investments or any other financial transactions which were made during the particular accounting period.

What is meant by the financial status of a company? It shows you the total financial resources the company has as well as the claims against these assets at any given point in time. A company is therefore a unique blend of financial resources as well as claims, which are also referred to as equities. Irrespective of the type of business, it ought to have to types of equities: owners’ and creditor’s equities. Thus, Economic Resources = Owners Equity + Creditors Equities.

Assets, in accounting terms refer to the total financial resources the company has at a particular time period. On the other hand, its liabilities are the total amount of creditors’ equity which the company has to carry. Thus, the most common accounting formula or equation is Assets = Owner’s Equity + Liabilities. Like any other equation, both sides of the equation should be equal. This equation shows the financial results of daily business operations of a company.
Let us examine the two most important concepts in any business, assets and liabilities. Assets are financial resources which are expected to generate more wealth in the future. This could be real estate owned by the company which could be rented or leased out to generate income. In case the company belongs to the category of owned companies then this value is added to accounts receivable in terms of money. Yet there are plenty of assets which are intangible like copyrights, trademarks and patents which are equally valuable to any business.
What are liabilities? These are prior commitments which the company has already entered into. These can be transfer of assets to another entity, cash out flow or providing services to customers in the future. These are also known as debts of a company or the money owed by the company to others in future. All these details are noted under accounts payable. It is obvious that a company which has plenty of debts or liabilities is treated to be claims according to business law.

In case the company fails to meet its obligation to clear the debts to its creditors, law says that the credits have the right to demand sale of the company’s assets to recover the amount. The creditors yield a lot of control over the owners of the company and their dues must be paid in advance, much before the company has received any money from the market. In the unfortunate event of debts eating into the assets of a company, the owner’s equity pertains to the claim of the business owners with relation to the assets possessed by them. In other words this is the amount owed in interest or the balance resources available after deducting the amount pertaining to entity liabilities. Thus, to calculate the owner’s equity: Owner’s Equity = Assets-Liabilities.

When the owner’s equity is called in some companies as stock holder’s equity, the equation would be Assets = Liabilities +Stockholder’s Equity. Retained earnings and contributed capital are the two components of stock holder’s equity. Thus, Stockholder’s Equity = Contributed Capital + Retained Earnings.
The amount which each stock holder has invested in the company is called as the contributed capital. This is usually separated in two distinct segments named as ‘par value’ and the ‘additional paid capital’. Retained earnings are the equity amount which have been earned by the stock holders but retained for future use by the company.

If you imagine your business to be a river and you were riding a canoe – would you be floating or paddling? These activities mean two different business attitudes: floating is when you are defensive and paddling is when you are on the offense. It is up to you how you would like to run your business.

Today’s business environment is high competitive. To survive and prosper in this kind of climate, if you are not offensive you run the risk of being thrown around like a discarded ball. For instance, when you find that your advertising is not working a defensive business strategy is to wait and watch to see if things improve in the future. The offensive strategy is to get control of the situation and proactively attempt to fix whatever is going wrong.

Take the case of one of the most important aspects in business, called ‘competitive intelligence’. This is the knowledge and skill needed to successfully outdo the competitor by deploying several offensive competitive strategies. In case you are not too familiar with what competition is doing then your business days are numbered. Take a look at the example below:

Imagine you have a high-margin profitable product and a direct competitor drops his price. If your first reaction to this situation is to drop the price of your product also, you need to stop and re-think. Ask yourself whether this could affect your competitive advantage. In case the answer is ‘yes’ then do some souls searching with the following questions:
• Was the price drop unequivocal or the competitor has altered/modified some features/benefits?
• Is the price drop adequate to influence buying behavior?
• Can the competitor manage to handle the surge in demand without affecting product or service quality and negatively impacting customer satisfaction?
• Is the price drop applicable for a single territory or is it all-pervading?

Your competitive edge comprises of several marketing and product attributes like branding, product design, services, etc. The most effective strategy can only be implemented if you have a thorough and updated knowledge of competitive activities. Only through knowledge can you protect your competitive edge. The most authentic source of market intelligence is your own sales force.

Sales people are in an advantageous position as they are in direct contact with customers and can gather the latest competitive information and customer feedback. But sales people are busy selling. It is your responsibility to explain to them the importance of gathering information about competitors and what strategies they are implementing in the market place. All information is equally important – both about direct and indirect competition.

To enable your sales force to gather competitive information, you must prove to them that the process is of value to them. This entails some hard work for you as there is enough information available internally, which you have to collate. Call reports, won-lost reports and sales records have to be studied to watch for red flags and market trends. The deployment of a competitive strategy may look small and insignificant till it is added to the other strategies deployed in other territories or part of a global implementation.

All your research findings can be co-related to other information and data collected from industry and published sources. Collating all this information can enable your sales force to combat competition more ably. Once you make your sales force understand the importance of the process as you embark upon a knowledge sharing exercise, you will surely receive reciprocal co-operation from them as they see what is in it for them.

Competitor information is not only restricted to the members of your sales force. Accounting, material procurement, HR and other functions attend conferences and seminars where they meet their counterparts from the competing companies. These people can add valuable tips and information on competitor activities. Simply ensure that they know the importance of the information and you have motivated them enough to share with the rest of the company.

In summary, if you are not paddling and not on the offense but simply floating, you will soon lose your competitive edge and find your business getting ousted.

Over the years the profile of people who use accounting information has changed. These days government users are its heavy user for tax calculation purposes. In fact, tax is the single most important source of income of the government. According to laws of the federal and state governments and even local laws, companies and individuals are required to pay a variety of taxes. Sales tax, excise tax, social security tax, federal, state, tax, payroll, and city income taxes are only a few of the taxes which companies and individuals pay.

Each of these taxes is governed by various complicated rules and regulation. It is your duty as a citizen of the country to pay taxes, though it is a tedious process. For instance, for providing accounting information on federal income tax, the Internal Revenue Code contains thousands of rules. It is also mandatory for all companies who operate in the US to report to one or more regulating agencies.
Public corporations are governed by Securities and Exchange Commission or SEC (To find out more information visit their website at http://www.sec.gov/). This regulatory body is set up by the government to protect the interest of the public in matters of investing in stocks and shares. Companies who are listed in the Stock Exchange would have to comply with SEC’s rules and regulations. Groups like the labor union also study the financial statements to negotiate contracts with the management, where the income of a company plays a major role.

The people who have an indirect interest in the finances of the company are brokers and finance analysts who advise investors and creditors. These days, consumer groups and members of the public also take a keen interest in the financial health of a company.

They are keen to know how the financial health of a company is going to impact the environment as well as the people living in that area. To set economic policies and programs, President’s Council of Economic Advisors and the Federal Reserve Board may also use accounting information.

It is interesting to note however that nearly 30% of all business in the US are non-profit organizations like hospitals, universities, Red Cross, YMCA, Better Business Bureau, and WWF(World Wildlife fund, was formerly in a lawsuit and won against WWE World Wrestling Entertainment, which was originally known as World Wrestling Federation).

It is possible that you might be thinking that managers of such non-profit companies need not be familiar with accounting principles. Reality is that they are familiar. They have a budget to work on and need to supplement their income by raising money. The money is collected from investors, creditors or donors. They also follow taxation laws and pay the creditors on time. So the non-profit businesses also have to follow the same rules and have to comply with many similar business situations.

Accounting can measure processes and communicate vital information in an efficient way. To make a viable measurement, accounting has to take into consideration four simple questions: what is being measured, when should a measurement be made, how much money should be placed on what is being measured, and how the measurement should be categorized.

These questions related to the basic rules which govern accounting as an art and science.

Every day, accountants are challenging these questions which are resulting in the answers changing every day too. It is thus a good idea to keep your self updated on the current trends.
For example take the first question which asks what is measured. Imagine a machine which stitches clothes. How many different measurements can you possibly make of the machine? You can calculate its cost, how much its productivity is and how fast it can stitch the desired number of clothes. While some of the information is very important to accounting, some are irrelevant. Financial accounting also probes into find how money can impact other businesses and corporations.

Accounting decisions are usually based on three factors: people who are managing the business, external people whose money is at stake in running the business and people or organizations which indirectly impact the running of the business.

This principle applies to non-profit organizations as well. Management of a company refers to a group of people who run the business with pre-set financial and liquidity goals. When the company is large, usually management would consist of a group of people, many of whom are hired by the company to do their jobs.

The management of a company has to face some serious accounting issues like net income and whether they have achieved substantial return on their investments. Is the company rich in assets? Which is the most profitable product? All business decisions are made in a systematic and structured way. Though larger corporations need a more in-depth analysis, their accounting principles would be very similar to smaller businesses.

Financing a business:
You need financing if you want to run a business successfully. If you wish to have more information on financing of a business, go to sba.gov/financing.

Investing in a business:
Companies invest in their current assets so they can give richer returns in future.
Producing goods or services: The responsibility of product development and production of the goods which the company would sell rests with the operations and production management.

Marketing:
These professionals effectively market and promote the products which the company makes.

Managing workers:
Hiring qualified and skilled professions is the function of human resource management.

Providing information:
The information management services in a company retrieves important manufacturing, marketing, distribution and other data and passes on the information in a systematic and organized way to others in the company so that such information can be used by them in a useful manner.

The other groups of people who need accounting knowledge are those who have a direct interest in the running of the company. These people analyze the data collected and read through them to check how the company is doing financially. Businesses would normally publish their financial report which informs people regarding their achievements in terms of meeting profitability and liquidity goals. These reports not only talk about how the company performed in the present but also how it is likely to perform in the future.

Many people outside the business also study such reports.
These people are the investors and creditors. Investors are those who have invested their money in the running of the company and will claim part-ownership. These people are curious to know about the company’s past successes and failures as well as potential earnings. A complete analysis of the financial report could influence potential investors to invest their money in to the company in the future. Once they have invested, they would continue to read its financial statements.

Creditors can be companies who loan money to the company for long or short term needs or people who pay advance deposit for services expected from the company in future. The common interest of all these creditors is whether the company would be able to repay the money with accrued interest in time. So before making any lending decision, these creditors study the liquidity status, cash flow and profitability. Banks, mortgage companies and insurance companies are some examples of creditor companies.

Moreover, retained earnings are greatly influenced by three kinds of transactions, and these are dividends, revenues, and expenses. Revenues are earned when the stock goes up and expenses are incurred when the stock comes down. Revenues and expenses occur due to the running of a business, whatever it may be – whether it is online or offline. In case you have an online business, then the operating expenses that you will incur if you host your own website would be the domain name as well as the hosting service. A further example would be a client in favor of paying you soon for a service to be rendered by the company. In this case, the money is entered in the column under accounts receivable or the asset account, and this brings about a rise in the value of the assets but reduces the equity amount of the stockholders, which is an illustration of revenue. But, if the company pledges to supply a service sometime in the future then this is called as an expense. Now when this takes place, the assets go down (accounts receivable) while the liabilities or the accounts payable go up, and this is quite reasonable isn’t it?

When the revenues are more than the expenses, it is called the net income and this is certainly a good thing. But, when the expenses are more than the revenues, then this is called net loss, and this indicates that you are running an unprofitable business or that your business needs a great deal of money to run than what you actually earn. Next, dividends refer to the asset distribution amongst the stockholders and pertain to past earnings. Now, do not mix up expenses and dividends, since they both lead to a reduction in the amount of retained earnings. Next, retained earnings refer to the amassed net income or the revenues less the expenses. A company’s financial statement is the principal method for conveying information relating to its business to people who have some sort of interest in its running. Now what strikes me is to view these statements as some sort of a model for the business since they reveal how well the business is doing financially.

Nevertheless, similar to a whole host of models and methods, financial statements definitely are not flawless and have their shortcomings. There are 4 chief financial statements, and these are the income statement, the retained earnings statement, the balance sheet, plus finally the cash flow statement. Now the job of the income statement is to sum up the revenues received or the money generated, as well as the expenses, which is subtracted from the business. A majority of the accountants believe it to be the most vital financial report since it brings to light the fact whether the business has attained its profitability goal. Next comes the retained earnings statement and it exhibits the retained earnings made over an extended period of time. Now the time when retained earnings are depicted as zero pertains to when the company first initiated their accounting period.

It is seen that a number of companies tend to make use of the stockholders equity statement in place of the retained earnings statement. This in fact is a more comprehensive statement since it shows apart from the elements of retained earnings, also the changes made in the accounts of the stockholders equity. Then, the financial position of the business as on a specific date, generally at the month end or the year-end, is contained in the balance sheet. Now, the balance sheet shows the value of the business based on its assets as well as the claims made on those very assets, which are called the liabilities together with the stockholders equity. Finally, the cash flow statement reveals the company’s liquidity measures. Now these statements are essentially the cash inflow and the cash outflow of a company. Net cash flow is obtained by making deductions between cash inflows and outflows. The cash flow statement also exhibits the money made just by running the business, and in addition, it also reveals the investments and financial transactions that take place in the course of a specific accounting period.

The financial condition of a company depicts the total resources at its disposal and in addition the claims against these valuable assets at any given time. Claims are also known as equities. Therefore, a company can actually be called a blend of economic resources as well as equities. Economic Resources = Equities. Whatever be the kind of business you run, every kind of company normally has two different kinds of equities. These are the owner’s equity and the creditor’s equity. Put differently, Economic Resources = Owners Equity + Creditors Equities.

In accounting terms, a company’s assets refer to the financial resources a company possesses at a certain period of time. Conversely, a company’s liabilities refer to the amount of a creditor’s equity that a company has. Therefore, the common accounting formula or what is popularly called the accounting equation is depicted as follows: Assets = Owner’s Equity + Liabilities. Just like an algebraic equation, it is necessary that both sides of this equation need to be balanced. This equation is very useful when studying the financial outcomes of your daily business activities.

Now let us address an extremely vital concept of all businesses. Assets are called the financial resources of a business and these are expected to create wealth for the business in the future. Examples of this are real estate as well as any other property owned by the business in order that it can lease it out to people. In case it is an owned business, then the money enters what is referred to as accounts receivable and these are monetary items. But, there are quite a few assets, which are not physical in nature. A few examples of such assets are patents, trademarks, and copyrights but then they too are considered very precious to a business.

Liabilities refer to the commitments of a business like reassigning assets to some other entity, paying cash, or supplying future services to customers. These are called the debts of a business venture or the money owed by them sometime in the future. Now all such items are meticulously noted down in accounts payable. You must be aware that it is not a wise thing to have plenty of debt and debt/liabilities are considered to be claims in the eyes of the law.

Well, the law grants creditors (people to whom the business owes money) the right to demand selling of the company’s assets in case the company fails to clear their debts on schedule. Creditors have loads of rights over the business owners and it is mandatory that they be settled in full much before the owners get anything. Now it is quite probable for debts to make inroads into all of a company’s resources. Then, owner’s equity pertains to the claim of the business owners with relation to the assets possessed by them. This is the interest available or the remaining resources of a business after subtracting the sum of entity liabilities. This is the formula for calculating owner’s equity. Owner’s Equity = Assets-Liabilities.

Now the owner’s equity in a certain company is called as the stockholders equity, and therefore the equation then appears something such as this: Assets = Liabilities +Stockholder’s Equity. This stockholders equity comprises of two separate parts and these are the retained earnings and the contributed capital. Stockholder’s Equity = Contributed Capital + Retained Earnings.

Contributed capital refers to the amount, which each individual stockholder invests in the business. Generally, contributed capital is segregated into two discrete parts called as the “par value” and the “additional paid in capital.” Now, retained earnings refer to the equity amount, which stockholders earn by way of the income producing activities of the business and that are retained for future use by the business.