Know what the “Accounting Cycle” is.
The accounting cycle is the process every financial business transaction in your small business should go through.
First, the transaction happens…you make a sale or pay a bill.
Secondly, that transaction is recorded in a journal (see this article on posting accounting journal entries) then the transaction is posted to the account it is impacting in your accounting ledger.
After trial balances, worksheets, and adjusting journal entries, all your transactions for a specified time period are gathered together in financial statements (we will discuss more about financial statements in a late issue).
If you have double entry accounting software many of the above steps happen in a slit second when you post that check you wrote for advertising for example.
However, understanding basic accounting will help you know why your office furniture purchase is not on your Profit/Loss (Income) Statement but on your Balance Sheet…why your accountant is telling you your debt to assets ratio is too big…etc.