Business Accounting Fundamentals from a Maryland Business Attorney

When they realize how much time and work is involved in handling the accounting processes for their companies, many business owners decide to delegate these tasks to the professionals. This overview of business accounting fundamentals from a Maryland business attorney will provide some of the information that could help you with that decision. A Maryland business attorney could help you with many of these accounting functions. 

The Fundamentals Of Business Accounting Include These 12 Categories 

1. Classifying Accounts, Titles Of Accounts, Liabilities, Assets, Debits, Credits, And Owner Equity 

The accounting field uses standardized customs for classifications and titles of accounts so that one can open a financial ledger or statement from any company and understand it. You will need to know these conventions to keep your books in order. Auditors and potential investors expect and demand accounting records that are precise and accurate. 

2. Balance Sheets And Ledger Accounts 

You will need to understand how the transactions of your company get posted into ledger accounts and how to create a balance sheet from your financial records. 

3. The General Ledger And Journal 

One process of business accounting involves knowing how to enter transactions into an 11-column journal correctly and transferring those postings into the right general ledger accounts. 

4. Accounts Payable  

This is the accounting term for the bills your company has to pay. You will need to make journal entries for cash purchases and purchases on account. After recording those items, you will transfer the entries to the appropriate Accounts Payable ledger accounts. 

5. Accounts Receivable  

This is the accounting term for money that other people owe your company. Customers, clients, and tenants are examples of entities that might owe money to your business. Sales need to get journaled and posted to their accounts. Charge sales must get entered into the journal, and then you need to transfer that information into the Accounts Receivable ledger. 

6. Payroll Systems  

Calculating gross pay for each employee, all of their deductions, your matching contributions, and the net pay can be laborious and time-consuming. Depending on the size of your company, you might want to have a dedicated payroll employee or department or use a payroll service. Otherwise, you must make these calculations, cut the paychecks, deposit the tax withholdings and retirement contributions, and create and submit the tax reports to the government yourself. Maintaining accurate payroll records is vital to defend yourself if an audit occurs. 

7. Bank Accounts 

You will need to have a handle on every dollar that goes into and comes out of every one of your company’s bank accounts. You might have several accounts, like a General Operating Expenses Account, Escrow Account, Trust Account, and Taxes Account. The statement from each account must be examined every month to make sure that every transaction got recorded and to check for business mistakes or theft.  

The checkbook ledgers should get cross-checked with the bank statements to make sure that the amounts are correct. If someone is embezzling funds within your company or at the bank, you should be able to catch it quickly by careful attention to these records. The bank statement should balance with your records every month after allowing for outstanding checks and deposits.  

Also, make sure the bank does not charge unwarranted fees. Some banks have gotten into trouble with the federal government by charging customers unjustified fees. You cannot contest these things if you do not look for and find them. 

8. Using Your Accounting Records To Evaluate The Financial Health Of Your Company  

This information can get used to generate reports for your internal business planning or submitted to entities outside of your company. For example, you will need to prepare financial reports for prospective partners, potential investors, and to apply for a business loan or grant. Two of the reports you will need to prepare are a Schedule of Accounts Receivable and a Schedule of Accounts Payable. 

9. End-Of-Year Worksheet  

This report can show you the company’s net income or net loss for the year at a glance. The End-of-Year Worksheet needs to include all the income and expenses for the year. The report should also list the balances of the assets, liabilities, and owner’s equity accounts. End-of-Year Worksheets often provide the two previous years of figures for all accounts to allow a quick comparison and to show trends. 

10. Annual Financial Reports To Track The Performance Of Your Business 

At the end of your fiscal year, you will need to create a variety of reports for your business. For example, you should create an Income Statement, a Distribution of Net Income report, and an Owner’s Equity Statement. Going through the process of drafting or examining these reports can help you identify changes you might need to make for the economic well-being of your company. 

11. Adjusting Entries  

This step is an essential accounting function for any business. You will need to make adjusting entries of your assets and accounts at the end of the fiscal year. Also, you will need to know how to post adjusting entries and closing entries in your company’s General Ledger to ensure all the books balance and accurately reflect the reality of your business. 

12. Cross-Checking All Debits And Credits In The General Ledger 

Before closing out the books for the fiscal year so you can start the new fiscal period, you will need to cross-check all the debits and credits in the General Ledger. Everything must balance and synchronize. The process of performing this function is called preparing a Post Closing Trial Balance report. 

Few business owners handle all of their business accounting tasks themselves. No matter which tasks you decide to outsource, you should examine their reports regularly to prevent mistakes or fraudulent activity. While you might use the most reputable professional firms around, it takes only one employee with questionable moral judgment to take what does not belong to them. In that situation, the firm would welcome that information.  

A Maryland business attorney can work with your company’s bookkeeper or accountant or perform many of the accounting and reporting tasks to help you stay in compliance with state and federal regulations. Contact Steve today.