#accounting-basics
Foundational accounting concepts, terminology, and principles for small business owners
Bank reconciliation proves your cash balance monthly: match outstanding checks, deposits in transit, fees, and NSF items before the IRS notices the gap.
Your books and bank statement disagree over timing, fees, and errors — adjust both sides monthly until they land on one true cash figure.
Every transaction lands in one of five account types: assets, liabilities, equity, revenue, expenses. Copy this starter template and tailor it to your business.
Debits grow assets and expenses; credits grow liabilities, equity, and revenue. Learn the five rules plus a 6-step hunt for trial-balance errors.
FIFO maximizes reported profit when costs rise, LIFO minimizes tax, average cost splits the difference — choose by cash flow, borrowing plans, and IRS rules.
Freight-in is part of inventory cost and becomes COGS when goods sell; freight-out is a selling expense. Mixing them distorts gross margin and tax.
COGS equals beginning inventory plus purchases minus ending inventory — two careful counts decide your gross profit, pricing, and tax.
Assets minus liabilities equals equity — and three ratios (current, quick, debt-to-equity) tell you in five minutes whether your business is solvent.
Operating cash flow, not net income, shows whether your business generates cash — read all three sections in five minutes a month.
Total debits must equal total credits before you close — the trial balance proves it, then feeds your balance sheet.
Cash-to-accrual switches run through IRS Form 3115: positive Section 481(a) catch-ups spread over four years, so cutoff discipline sets the bill.
Break-even units equal fixed costs divided by contribution margin — run it in units and dollars, then guard it with a margin of safety.
