Introduction to Accounting: Key Concepts for Small Business — Flashcards

Accounting for small business is the systematic process of recording, summarizing, and analyzing financial transactions to monitor profitability, manage cash flow, and ensure tax compliance. Key concepts include keeping business/personal finances separate, using the accrual or cash method, maintaining the accounting equation (Assets = Liabilities + Equity), and producing balance sheets and income statements to guide financial decisions. 

Key Accounting Concepts for Small Business
Separation of Personal and Business Finances: Maintain a distinct business bank account and credit card to accurately track business performance and simplify tax filing.
The Accounting Equation (Assets = Liabilities + Equity): This is the foundation of accounting. Assets (what you own) must equal liabilities (what you owe) plus equity (your investment in the business).

Cash vs. Accrual Accounting:
Cash Basis: Records revenue when cash is received and expenses when paid.
Accrual Basis: Records revenue when earned and expenses when incurred, providing a more accurate long-term picture.

Key Financial Statements:
Income Statement (Profit & Loss): Summarizes revenue and expenses over a period to show net profit or loss.
Balance Sheet: Reports the business's financial position (assets, liabilities, equity) at a specific point in time.
Cash Flow Statement: Tracks the actual cash entering and leaving the business.

Core Terms to Know:
Accounts Receivable: Money owed to you by customers.
Accounts Payable: Money you owe to suppliers or vendors.
General Ledger: The master record of all financial transactions.
Consistency and Matching Principle: Use the same accounting methods consistently for comparison, and match expenses directly to the period in which the corresponding revenue was generated. 

Essential Small Business Accounting Tasks
Bookkeeping: Regularly documenting receipts, invoices, and bank transactions.
Reconciliation: Checking bank statements against accounting records to ensure accuracy.
Tax Compliance: Tracking expenses to calculate and settle tax liabilities, such as VAT or income tax.