Theme: Accounting matters

Prepare an unadjusted trial balance. At the end of a reporting period, list all of your business’s accounts and figure out their balances.
Prepare adjusting entries at the end of the period. When you need to update entries you’ve already made, you prepare adjusting entries. For example, if a client is late on paying an invoice and you offer a 5% discount to help them pay, you would enter the discount as an adjusting entry, as opposed to changing the entry you’ve already made.
Prepare an adjusted trial balance. After entering in adjusting entries, you’re left with an adjusted trial balance. This information is now ready to be turned into financial statements.
Prepare financial statements. Finally, all the information you’ve collected is converted into your financial statements. This final step includes summarizing all your financial information into succinct reports for easy review.
Accounting software takes your accounting information and automates most of these rules and processes, so we’re going to skip over the gritty details of the accounting cycle and talk about the end product: financial statements.

Financial statements

Financial statements

Financial statements are reports that summarize how your business is doing financially.

There are three main types of financial statements: the balance sheet, income statement, and cash flow statement. Together, they tell you where your business’s money is and how it got there.

Let’s say you’re a self-employed surfing instructor who bills clients for surfing lessons. Financial statements can tell you what your most profitable months are, how much money you’ve spent on supplies, and what the total value of your business is.

Generally accepted accounting principles (GAAP)

Every company is different, but in order to make accurate financial comparisons between companies, we need a common language to describe each of them. That’s what generally accepted accounting principles (GAAP) are: a series of standards and procedures that accountants at all companies must adhere to when preparing financial statements.