Accounting 101: The Basics for Non-Accountants

Accounting is the system for recording, summarising and understanding your business's money. For non-accountants, the essentials come down to two statements: the Profit and Loss account (how you did) and the Balance Sheet (what you have).

What is accounting?

Accounting records every transaction, then summarises them into reports that show whether the business is making money, what it owns and what it owes. Good accounting is the foundation of good decisions — and it is required to file your tax returns.

The Profit and Loss (P&L)

The P&L shows your income and expenses over a period, and the difference is your profit or loss. In simple terms: revenue minus expenses equals profit. It answers the question 'how did we do?'.

The Balance Sheet

The Balance Sheet is a snapshot of what your business owns (assets), what it owes (liabilities) and what is left for the owners (equity). It always balances because assets equal liabilities plus equity. It answers 'what have we got?'.

Key terms to know

• Assets — what the business owns (cash, equipment, money owed to you).
• Liabilities — what the business owes (loans, bills, tax).
• Equity — the owner's stake in the business.
• Revenue — income from sales.
• Expenses — the costs of running the business.
• Cash flow — the money moving in and out.

You do not need to become an accountant to run a business — but understanding these basics makes a huge difference. If you want your accounts explained clearly and set up properly, talk to Bradán Accountants.