The ABC's of Accounting

Accounting is an after-the-fact business expense. It requires time, effort and planning, the benefits of which are:

1. You are able to see where the money is going;

2. You can forecast how much money you will spend to support sales;

3. You are able to keep track of revenue and expenses to meet tax reporting requirements.

Because an accounting system costs money, time and effort, it is important to carefully select what you want out of it and how much you are willing to spend before you select and implement it.

Usually, there are three approaches which may be taken when setting up an accounting system:

• Cigar box accounting

• Fixed and non-fixed (or indirect and direct)

• Revenue by market segment

Cigar Box Accounting

This is the where you put all your sales into one cigar box and all the bills in another. Some companies use a checking account instead of cigar boxes. At the end of each month, what is left in the sales cigar box, or checking account, is your gross profit. This is an excellent system for many companies. It costs very little to maintain and you can rapidly tell how things are going by comparing unpaid bills to cash in the cigar box. If you have a one-service company, and sales tax is either zero or the same for all your customers, Cigar Box Accounting works.