What is Accounting?

https://blog.hubspot.com/sales/accounting-101

Accounting is a necessary part of running a business. It’s a task you’ll either need to master or outsource — or both. Let’s ease into the topic by first reviewing accounting terminology.

Business Accounting Basics

Regardless of who manages your business accounting, it’s wise to understand accounting basics. If you can read and prepare these basic documents, you’ll understand your business’s performance and financial health — as a result, you’ll have greater control of your company and financial decisions.

Here are the documents and calculations we recommend mastering, even if you work with a professional, consulting agency, or have hired a certified public accountant (CPA). They provide valuable snapshots and measures of your business performance.

• An income statement, which shows your company’s profitability and tells you how much money your business has made or lost.
• A balance sheet, which is a snapshot of your business’ financial standing at a single point in time. A balance sheet will also show you your business’s retained earnings, which is the amount of profit that you’ve reinvested in your business (rather than being distributed to shareholders).
• A profit and loss (P&L) statement, which is a snapshot of your business’s income and expenses during a given time period (e.g. quarterly, monthly, or yearly). This calculation will also be reflected on your business’s Schedule C tax document.
• A cash flow statement, which analyzes your business’s operating, financing, and investing activities to show how and where you’re receiving and spending money.
• A bank reconciliation compares your cash expenditures with your overall bank statements and helps keep your business records consistent. (This is the process of reconciling your book balance to your bank balance of cash.)