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Frequently asked questions...

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 How can accounting help me make money

 Quite simply, accounting tells you if you are making money. If you create a profit and loss statement each month, you can ascertain your position quickly. If you are losing money, you can make changes in your operations, such as increasing prices or reducing expenses, to correct the situation long before the year’s end and ensure that your overall year will still be profitable.

 

Can’t I just write cheques, make deposits, and pay taxes?

If you don’t do any accounting, then that’s probably all you’re doing—making deposits, writing cheques, and paying taxes, but not making any profit! Even in a very small business you need to be in control of your expenses. This doesn’t just mean having the money, it means knowing what portion of your revenue gets spent for what purposes. What percentage of revenue do you spend on marketing each month? What about labour? What about supplies? If you don’t track and control these expenditures, you are not managing your business—you are just blindly hoping there might someday be a profit.

 

Can’t I hire a bookkeeper to do the accounting for me?

A good bookkeeper or even a good accounting software program can help you organize your accounting quickly but you still need to understand the basic principles of accounting. This will allow you to use the information supplied by the bookkeeper or software program intelligently, enabling you to make the changes in your business that will keep it on track towards success and profitability.

 

What’s more important, profit & loss statements or balance sheets?

At the risk of sending all accountants into apoplexy, I feel that the profit & loss statement is the more important document. The profit & loss statement tells you if you are making money and outlines your costs and expenses.  However, a balance sheet shows you how your assets are being used. For instance, from a balance sheet you should be able to tell whether or not your stock held is too large or your debtors are growing.