What Is a Sublet, and Should You Be Subletting Your Place?

Bookkeeping is the process of collecting and organizing data on all of your business’s financial transactions. Every expense, payment, as well as any profit is accounted for. This includes sale invoices, payroll ledgers, accounts receivable, assets, and liabilities. Bookkeeping is essentially your business’s cash flow management. It shows how well the company is performing and which areas need attention. Documenting all cash flow in detail gives you a complete overview of your financial activities and your business’s financial state. This overview of the types of bookkeeping will touch upon the difference between single-entry and double-entry bookkeeping, what methods of bookkeeping exist, and how important regular recording of financial transactions is for running a successful company. Basic Bookkeeping Transactions Incoming and outgoing finances are the two main types of business transactions under your bookkeeping.  Incoming finances are your income/revenue, which is all the money earned, sales, and profits. In turn, they become assets, which are all the existing property owned by your business. Any preexisting cash and property are also included.   Outgoing finances are the company’s liabilities - mandatory payments, taxes, and loan installments - and expenses: money used to pay for services, employee salaries, and operational costs.  After these two main bookkeeping categories, we have equity or the difference between the company’s assets and liabilities. How Does Bookkeeping Differ from Accounting? Bookkeeping needs to be done first, before the accountant can analyze the company’s books. It is an essential part of any business finance management. Accounting is the later process where all collected and complete financial data - the trial balance - is analyzed. Accounting includes drawing financial statements based on which timely business decisions can be made. Accountants are also responsible for financial advice and tax returns. Methods of Bookkeeping and How They Work Let's take a look at the specifics of the single-entry and double-entry method. Single-Entry The single-entry method records individual transactions as they happen. Once a sale or payment is received, or an expense is made, it’s documented as a stand-alone entry, plus its minimal details. This bookkeeping method is best suited for smaller businesses. It’s also adequate for operations where there’s little to no physical sales or inventory involved, i.e., digital transactions, services, and those with little or no physical goods to exchange.  Single-entry systems offer multiple advantages: They are simple and therefore save you time and money. Besides, they usually don’t require additional staff or training.  Of course, there are some downsides as well. These include possible loopholes that can be exploited to cover up mistakes and fraudulent transactions, especially if no software or app is used and everything is manual. Furthermore, there is no fast way to check for balances, liabilities, and on-time payments, which can result in penalties and late payments. Also, arithmetic errors in the account totals are relatively common. Using these simple bookkeeping systems for small businesses is a feasible solution, but it most likely won’t be enough for complex operations, where ready financial snapshots are often necessary to help make informed and timely decisions. Double-Entry Double-entry systems are more complex since every transaction is entered twice: in the left-hand account under Debit and in the right-hand account under Credit. Double-entry bookkeeping is used for larger and more complex business operations, and it works like an error-detection tool since the sum of debits must always equal the sum of credits. If it doesn’t, it points to an error. Using the double-entry system makes it easier to monitor all activities and ensure all your books are balanced. The rough total of your capital gap is easily determined.  However, it’s a time-consuming and costly process, and utmost accuracy is needed when making entries. It usually requires extra training, staff, and software for it to be fast and effective. Also, due to the complexity of the system, finding where the error is and correcting it can be challenging.  Compared to the single-entry bookkeeping system, double-entry is a more thorough, time-consuming approach to bookkeeping. Most smaller businesses don’t have time, resources, and extra people to work on detailed bookkeeping. But the results help companies cover everything being exchanged. It also provides instant access to all data.  These are the two basic systems a company can use for bookkeeping. In the past, all entries had to be made manually. With the advancement of technology, various kinds of accounting software and apps have come to the bookkeepers’ aid. Digital Bookkeeping Systems Businesses can reap many benefits from using bookkeeping apps. All primary operations are automated and can be carried out remotely from your phone anytime, anywhere. The main features and automated functions of these apps include: Tracking all outgoing payments and fund transfers Digital tracking of all incoming finances Reports available anytime for mass sending Encryption of financial and confidential business data Apps for both iOs and Android devices Affordable monthly rates starting at $9 External functions such as e-filing and online banking Bookkeeping software such as Quickbooks, Freshbooks, and Zoho have basic accounting features in addition to their comprehensive tracking and management systems. Smaller businesses employing the single-entry method can use these apps to speed up the process further and increase accuracy. If you own a small business and are bent on cutting costs, the chances are that with one of these apps, you won’t even need to hire a bookkeeper - you’ll be able to do the bookkeeping yourself. Virtual bookkeeping means that independent, remote bookkeepers will manage and balance your books instead of a physically present bookkeeper. This is often a time- and cost-saving option for companies. A virtual bookkeeper can manage and monitor your finances in real time beyond office hours. It can be a good solution for companies with a bigger budget allocation specific to these tasks, covering many departments and their complex financial dealings for the company. Often, there are inventories and accounts payable and receivable that need to be checked and prioritized. How Bookkeeping Benefits Your Business There are many advantages to bookkeeping. Financial insights from tracking all your financial transactions will help you manage the business, maintain supplies and payrolls, and keep payments on time. This way, you’ll avoid costly penalties and other negative consequences of late payments.  All numbers will match when your books are balanced at the end of a month, quarter, year, or another specified period. These detailed lists of numbers may look complex and intimidating, but when laid out and checked, they’ll enable you to easily assess priorities.  Even just a simple bookkeeping system can help detail the financial state of your company. Your working capital gap is a good indicator of this - it’s the total difference between your assets and liabilities.  Positive cash flow is maintained and received on time. From here, you can allot budgets and give priority to specific expenses or additions to inventory or assets. Being able to execute the business’s balances correctly and on time will help the company deal with loans, bank payments, and other obligations more efficiently. All of the bookkeeping methods discussed here will help you control your company’s finances and can be a big help to avoid penalties and bigger financial issues when going through an audit process.  

The Five Major Types of AccountsIf you’ve heard about debits and credits, you’ll know that the actions of debiting and crediting have an impact on certain accounts by increasing and decreasing them. But, how much do you know about the accounts they affect?Each time you buy or sell a product or a service, you are required to record the transaction in the corresponding account. In other words, you need to keep your business accounting books updated at all times. That way, you can track all the money going out of and coming into your business. Moreover, you’ll know exactly how much money you have in each account. Unless you sort and track your transactions by accounts, you won’t make accurate financial statements and sensible business decisions. Most businesses list their accounts by keeping a chart of accounts (COA) - a document that lets you organize your account types, number each account, and quickly find information about any past transaction.There are five different types of accounts in accounting that provide a structure to the chart of accounts, namely assets, expenses, liabilities, equity, and revenue. Given that their role is to define your business’s channels for spending or receiving money, each account category can be further broken down into several subcategories. It’s also important to note that the five major accounts are interrelated. Therefore, a change in one account triggers a chain reaction, making the other accounts change as well. In this article, we’ve made sure to provide a detailed definition of each account type, analyze its unique features, and offer multiple examples. Asset AccountsAssets are the physical (tangible) or non-physical (intangible) types of property that add value to your business. In other words, assets are resources owned by your company that have monetary value as they can be converted into cash. Depending on the nature of your business, several different things can be classified as assets. Vehicles, computers, equipment, buildings, and cash are considered tangible assets, while your copyrights, trademarks, logos, and similar non-physical items are intangible assets.Note that this account type can be broken down into multiple subaccounts. Here are a few common examples of assets’ sub-accounts: Checking account - This is your company’s bank account. Petty cash - A petty cash fund is a small amount of money used for expenses too minor to merit writing a check. Inventory - A company's inventory usually consists of goods in three stages of production: raw goods, in-progress goods, and finished goods that are ready to be sold. Accounts receivable - Even though your accounts receivable account isn’t the money you already have, it’s considered an asset as it’s the money that’s owed to you. Keep in mind that debits increase assets and credits decrease them. Make sure to debit an asset account each time you add money to it and credit it when taking money from it.Expense AccountsThese accounts reflect the outflow of money. Any cost your company incurs, such as purchasing a service or a product to manufacture goods or generate income, is considered an expense. Examples of expenses include advertising costs, utilities, salaries, rent, and others. Note that some expenses are deductible, which means that they can help you reduce your taxable income. You can deduct business-related travel and direct labor costs. However, you cannot deduct personal expenses, penalties, and donations.Much like various types of assets, expense accounts can also be fractioned in multiple subaccounts such as: Cost of goods sold (COGS) - This refers to the money you have paid for producing the goods you’ve sold. Payroll - Payroll or wages expense is the money paid to the employees for their work.  Rent - This is the cost of renting equipment or office space.  Insurance - This subaccount refers to the cost of the business insurance you’ve used.  Equipment - This is the cost of equipment you’ve purchased.Note that credits decrease business expenses while debits increase them. Therefore, remember to increase your expense accounts each time your company spends money.Liability AccountsLiabilities represent expenses your company has incurred but has yet to pay. These include any debts or obligations to creditors and other third parties to which your business owes money. A company’s financial obligations can be described as current or long-term. Debts that need to be paid within 12 months or less are classified as current liabilities. These mainly consist of monthly operating debts such as the customer deposit and accounts payable. Note that business owners typically use current assets such as the money in the company’s checking account to cover current liabilities. The difference between a company’s current assets and liabilities is called working capital.Noncurrent or long-term liabilities are debts that are paid off in years instead of months. These usually include mortgages, car loans, and business loans used to maintain or purchase fixed assets. Common examples of subaccounts that fall under the liability account category include: Payroll liabilities - This type of liability subaccount includes payroll-related costs such as wages employees have earned but haven’t yet received and taxes withheld from employees. Sales tax liabilities - This subaccount represents your sales tax obligations. Unearned revenue - This account type represents payments received on work that have not been completed yet. Accounts payable - These are the bills your company must pay. They are considered liabilities (not expenses), as these are the costs you have incurred but not paid for yet. Notes payable - These are your company’s financial obligations from signing a promissory note. Mortgage payable - This account type may refer to the mortgage you have on business property or any other business-related mortgage.Note that the general rule for liability accounts is that credits increase them while debits decrease them.Equity AccountsAlso referred to as net worth, equity indicates how much your company is currently worth. This account is of utmost importance to a company’s owner as it represents the value of the owner’s investment in the company. Equity is the difference between your business’s assets and liabilities or, more precisely, the residual interest in your company’s assets after the liabilities have been deducted. Dividends, common stock, and retained earnings are all examples of this account type.The role of equity in a chart of accounts may differ slightly based on whether a business is structured as an LLC, a sole proprietorship, or a corporation. Let’s take a look at some equity subaccount examples: Owner’s equity - Equity is the amount of money that is returned to a business owner if all of the company’s assets are liquidated and all of its debt paid off.  Common stock - This account type is used to record the investment of the company’s owners. Retained earnings - You’ll need this type of equity account to keep track of the earnings of your company (especially if you are running a corporation) and to record when these earnings are given back to the owners in the form of dividends.Keep in mind that an equity account increases through credits and decreases through debits. In other words, each time your assets grow, your equity increases. Also, as liabilities increase, your equity decreases.Revenue AccountsRevenue or income, the last of the five primary types of accounts in accounting, represents the value of the goods or services provided and thus the money your business earns from selling them to clients. This term is also used to denote the money earned from interest and dividends on marketable securities. In short, revenue accounts track the money your business brings in, both from its operations and nonoperating activities. Given that their balance is reset to zero at the beginning of a new accounting period (typically defined as a new fiscal year), revenue accounts are temporary or nominal accounts. Note that most accounting software solutions perform the resetting automatically.Examples of income subaccounts are as follows: Product sales - This account may include the revenue from a service you provide and the value of the products you sell. Earned interest - This account indicates the value of interest earned on investments or bank accounts. Miscellaneous income - Any other type of revenue falls under the miscellaneous income category. According to the rules of accounting, you increase your revenue account by crediting it. In the same vein, by debiting revenue accounts, you’ll decrease them. The Importance of a Chart of AccountsNow that you’ve learned about all the account types that form part of a chart of accounts, it’s time to talk about all the benefits of this financial listing. A chart of accounts lets you organize your company's complex financial data and break it down into easy-to-understand, logical categories. This listing also plays an important role in laying the foundation for all your business’s critical financial reports.However, many business owners consider their charts of accounts much more than just organizational tools. Keeping all your financial data in one place and analyzing the relationship between various accounts can provide invaluable insights into your company’s performance. Here’s an overview of the main benefits a chart of accounts can introduce into your business:1. Understanding your earningsOne of the most apparent advantages of a chart of accounts is that it can give you an excellent insight into your company’s revenue. Not only can this listing show you how much money your company earns, it can also help you pinpoint peaks and valleys in your income account, understand how much cash flow is available for you to use, and calculate how long that amount should last you considering your average monthly business expenses. 2. Spending smarterWe can all agree that a straightforward list of items you spend your hard-earned money on isn’t a sight for sore eyes. However, your chart of accounts can help you shift your perspective, offering a clearer view of your spending habits. That way, you’ll be able not only to deal with your essential recurring expenses such as rent, internet, and utilities but also to inspect other examples of your expenses and maybe even cut down on some costs if needed. 3. Figuring out how much you oweAnother tremendous benefit of a chart of accounts is that it offers a clear picture of how much money you owe, both in current and noncurrent liabilities. A thorough analysis of your company’s chart of accounts can help you figure out how much of your monthly income you can comfortably afford to put toward your debts. It can also help you create a sustainable longer-term debt repayment plan, no matter which types of liabilities you need to deal with. 4. Upgrading your reportsA chart of accounts is essentially a numbered list that organizes your finances into a system of accounts. Having a detailed and accurate chart of accounts makes it easier for your accounting professional, bookkeeping service provider, or yourself to develop in-depth financial reports, such as a cash flow statement, income statement, and balance sheet, which can help you grasp the financial position of your company.5. Simplifying the way you file taxesAn added bonus of keeping a neat and accurate chart of accounts is that it’ll make your life much simpler come tax season. This listing tracks your company’s income and expenses, which are precisely the items you’re required to report on your income tax return each year.

Petty cash is a small amount of money that companies keep available for minor daily payments, which are inconvenient to make by writing a check. But what is petty cash in accounting? Do you have to record these transactions on financial statements? Let’s take a closer look.How Much Cash Is Petty Cash?Petty cash typically goes anywhere from $10 to $500. Employees use this money for small quick payments: To pay for taxi fares in emergency cases, tip the delivery guy, buy flowers or cards for someone’s birthday, or snacks for employees working overtime. These small expenses, however, are a nuisance for the accounting team to deal with, which is why in some companies, it’s the employees who are purchasing, say, milk for coffee or staples for the office. However, expecting employees to pay for such expenses out of their own pockets is not a laudable practice and can justly cause employee dissatisfaction. That’s why a petty cash fund should be established to cover any expenses that are too small or impractical to be covered through the company’s account. Handling Petty Cash PaymentsTypically, companies that set up a fund (or funds, if the company is large, with many departments) also appoint someone to handle and monitor it. This person - the petty cash custodian - is in charge of managing petty cash, saving the receipts, and making out slips, and attaching them to the receipts to ensure that no money goes unaccounted for. Restricting access to the fund lowers the chance of theft or misuse. So, how do petty cash transactions work in a company setting?Every time a certain amount of petty cash is spent, the fund custodian should save a receipt. On a petty cash slip, the custodian can add the purpose and the date when the cash was spent or any additional information, depending on the company’s policy, and attach it to the receipt. Once the fund is depleted, the custodian will hand over the receipts to the petty cash cashier - the person in charge of replenishing the fund by issuing petty cash checks - and receive new funds in exchange for them.Replenishing and Reconciling Petty CashSince, by definition, petty cash is still a company’s funds, it, too, has to appear on financial statements. However, unlike other transactions, individual purchases made with petty cash are not recorded - instead, entries are made when the fund custodian needs more cash and provides the receipts to account for the previously spent money. The idea, of course, is to simplify the whole process of accounting for petty cash since, instead of making entries for dozens of small transactions, the accountant only has to deal with these in bulk, every once and a while.Petty cash accounting, also known as reconciling the ledger, usually happens once a month, although some companies do it weekly. The petty cashier will subtract the remaining amount from the starting amount to determine how much was spent since the last reconciliation of the ledger.  If, after adding up all the receipts, the total doesn’t match the sum of the disbursed funds - if there is a shortage or an overage - this is a signal that an error occurred. The matter should always be investigated, no matter how small the discrepancy. It could be a simple mathematical error or a more severe problem. A shortage of petty cash can, for example, be the result of a theft, which is more likely if more than one person has access to the petty cash drawer. Replenishing petty cash is usually scheduled at the end of an accounting period. The cashier should bring the receipts to the accounting team (if the company is a large one and has an accounting team) or enter the totals into one of the free accounting programs available for download that small businesses rely on. Accountants typically log this into the general ledger both as credits to the petty cash account and debits to expense accounts. Petty cash is typically replenished by a company-issued check. Accounting records replenishing the petty cash fund as a debit to the petty cash and credit to the cash account.Pros and Cons of Petty CashPetty cash, like everything in life, has its pros and cons. It’s effective as quick money to handle small and unexpected expenses and saves plenty of time because it doesn’t require planning in advance or authorization. On the other hand, petty cash is hard to keep track of, and it’s prone to misuse. There is always someone who needs to be in charge of the fund. Additionally, for smaller companies that don’t have an extensive accounting team and use accounting software instead, managing a petty cash fund can be a time-consuming task.The Bottom LinePetty cash is a perfect solution for small purchases and minor expenses. In comparison to using the company’s account to pay for these and flooding the accounting team with receipts, it’s much faster and more effective. However, with plenty of other choices technology gives to modern companies, managing such a fund can quickly become a nuisance. It’s no wonder that this practice is now rare, and many young people in the workforce ask themselves, “What is petty cash in accounting?”