10 bookkeeping basics you can’t afford to ignore

If you don’t understand the different types of “accounts” your bookkeeper uses to organise your finances, measuring the success (or failure) of your efforts will be futile.

Understanding the financial aspects of your business is crucial. You need to be aware of all financial transactions, not just your business bank account balance. This comprehensive view enables better decision-making, efficient bookkeeping, and prepares you for ATO audits, while also preventing fraud.

Here are 10 basic types of bookkeeping accounts

Cash

The cash account is fundamental. All business transactions go through here. Often, bookkeepers use two separate journals: Cash receipts and cash disbursements, to manage the flow of cash.

Accounts receivable

Accounts receivable represents money owed to the business by customers. Keeping this account updated ensures you send timely and accurate invoices, helping to manage cash flow effectively.

Inventory

Inventory involves tracking unsold products. Regular physical counts are necessary to match your books with actual inventory, preventing discrepancies and ensuring accurate financial statements.

Accounts payable

Accounts payable monitors money your business owes. Accurate bookkeeping in this account ensures timely bill payments, avoids duplicate payments, and may even offer discounts for early payments.

Loans payable

This account tracks the money borrowed for business purposes, including payments and due dates. It helps manage the company’s debt and plan for future financial needs.

Sales

The sales account records all incoming revenue. Timely and accurate entries in this account are crucial for understanding the business’s financial health and performance.

Purchases

The purchases account tracks all business expenditures on raw materials and goods. This is vital for calculating the Cost of Goods Sold (COGS) and determining the gross profit.

Payroll expenses

Payroll expenses can often be the largest expenditure for a business. Keeping this account accurate and up to date is critical for tax compliance and government reporting requirements.

Owner’s equity

Owners equity tracks the investments made by the business owner(s). Also called net assets, it reflects the ownership value after subtracting liabilities from assets.

Retained earnings

Retained earnings account for reinvested company profits that are not distributed to the owners. This account gives a running total of the profits retained since the business’s inception, important for investors and lenders.

Managing these accounts effectively ensures a clear financial picture of the business, aiding in better decision-making and long-term planning.

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• The old way: You dig through your inbox for the bill, then manually pay it online.
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Scenario 4: You have several clients who pay you a monthly fee.

• The old way: Every month, you create and send the same invoices over and over again.
• The Thriday way: You set it up once, and Thriday automatically sends the invoices each month. Easy!

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Learn how Thriday automates accounting and bookkeeping without you spending too much on an accounting software.

With Thriday, you can:

• Focus on your work: Spend less time on paperwork, more time serving your clients.
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• Be prepared for tax time: All your financial information is organised and ready to go, making tax season a breeze.

Thriday, an AI-powered accounting and tax software, isn't just about making bookkeeping easier; it's about giving you the tools to win more clients, save huge amount of money and give yourself more time to spend with friends and family. With Thriday, you can confidently manage your finances and focus on growing your business.

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Frequently asked questions

What are the essential principles that support good bookkeeping?

Good bookkeeping is based on several key principles. These include accuracy, consistency, and timeliness in recording transactions. Ensuring all financial data is complete and recorded systematically is also crucial. Confidentiality should always be maintained to protect sensitive information.

How does the foundational rule of bookkeeping apply to managing finances?

The foundational rule of bookkeeping, often known as the golden rule, means that every financial transaction has a dual effect. For instance, when money is received, another account must be credited to balance it. This ensures that the accounting equation remains consistent.

What are the five main components of bookkeeping?

1. Cash: Tracks all cash receipts and disbursements.
2. Accounts Receivable: Monitors money owed to the business.
3. Accounts Payable: Keeps track of money the business owes to others.
4. Inventory: Records the value and quantity of stock.
5. Equity: Represents the owner’s interest in the business.

What is seen as the most difficult part of managing bookkeeping well?

Tracking expenses accurately is often considered the most challenging part of bookkeeping. This includes keeping receipts, categorising expenses properly, and ensuring no costs are missed or misreported.

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