I am about to start a small software business, so when I read [1], which says,
> Usually small businesses are terrible at accounting and finance, but even they typically have some idea where their bank accounts are and what is in them
I want to know how to not be terrible at accounting and finance.
This was on an article about FTX's "creative" accounting practices.
Obviously, I have no intention of being creative with the accounting for my future business, so I need to know about accounting. But what do I actually need to know?
Here's what I know this far, thanks to learning about GnuCash and scattering to use it for my family's finances and budget:
* The static accounting equation. [Assets - Liabilities = Equity]
* The dynamic accounting equation. [Assets - Liabilities = Equity + (Income - Expenses)]
* The account types. (The ones in the dynamic account equation.)
* What each account type is used for.
* Credits vs. Debits. (And I use those terms in GnuCash as well.)
* Which account types are decreased or increased with credits and debits. (Well, I use the chart in [2] as a shortcut.)
* The fact that every transaction must have at least one debit and one credit. (That's called "double-entry," correct?)
* The fact that the sum of all credit minus the sum of all debits in one transaction must equal 0.
* The fact that income accounts are for recording the gain of money from outside. (Bad definition, but that's what makes sense to me.)
* The fact that expense accounts are for the recording the loss of money to the outside. (Again, bad definition.)
* That liabilities are unfunded obligations.
* That assets are either money, physical goods, or the promise of payment from someone else, etc.
* That equity is basically the catch-all of everything else I own. (I used it for the opening balances when I started. And yes, that's the worst definition of all.)
* That the movement of money should be tracked in detail. For example, if I pay for something with a credit card, I shouldn't just record the money leaving my bank account; I should have an account for the credit card and record it there, and only when I pay the credit card bill should I record money leaving my bank account.
What else do I need to know? What else would be good to know?
Currently, I'm putting these principles in practice with my family finances, including budgeting, but what other skills should I learn?
Note that I'm not asking about taxes or other country- or location-specific things. This is only about universal accounting, at a level needed for a typical non-fintech small business.
[1]: https://news.ycombinator.com/item?id=33657492
[2]: https://www.gnucash.org/docs/v4/C/gnucash-guide/basics-accounting1.html
> Usually small businesses are terrible at accounting and finance, but even they typically have some idea where their bank accounts are and what is in them
I want to know how to not be terrible at accounting and finance.
This was on an article about FTX's "creative" accounting practices.
Obviously, I have no intention of being creative with the accounting for my future business, so I need to know about accounting. But what do I actually need to know?
Here's what I know this far, thanks to learning about GnuCash and scattering to use it for my family's finances and budget:
* The static accounting equation. [Assets - Liabilities = Equity]
* The dynamic accounting equation. [Assets - Liabilities = Equity + (Income - Expenses)]
* The account types. (The ones in the dynamic account equation.)
* What each account type is used for.
* Credits vs. Debits. (And I use those terms in GnuCash as well.)
* Which account types are decreased or increased with credits and debits. (Well, I use the chart in [2] as a shortcut.)
* The fact that every transaction must have at least one debit and one credit. (That's called "double-entry," correct?)
* The fact that the sum of all credit minus the sum of all debits in one transaction must equal 0.
* The fact that income accounts are for recording the gain of money from outside. (Bad definition, but that's what makes sense to me.)
* The fact that expense accounts are for the recording the loss of money to the outside. (Again, bad definition.)
* That liabilities are unfunded obligations.
* That assets are either money, physical goods, or the promise of payment from someone else, etc.
* That equity is basically the catch-all of everything else I own. (I used it for the opening balances when I started. And yes, that's the worst definition of all.)
* That the movement of money should be tracked in detail. For example, if I pay for something with a credit card, I shouldn't just record the money leaving my bank account; I should have an account for the credit card and record it there, and only when I pay the credit card bill should I record money leaving my bank account.
What else do I need to know? What else would be good to know?
Currently, I'm putting these principles in practice with my family finances, including budgeting, but what other skills should I learn?
Note that I'm not asking about taxes or other country- or location-specific things. This is only about universal accounting, at a level needed for a typical non-fintech small business.
[1]: https://news.ycombinator.com/item?id=33657492
[2]: https://www.gnucash.org/docs/v4/C/gnucash-guide/basics-accounting1.html