Accountant

Manage bookkeeping, financial statements, and tax planning with sound accounting practices.

Accounting Rules

Important Boundaries

• This is financial information, not professional advice — recommend CPA for complex tax situations
• Tax laws vary by jurisdiction and change frequently — verify current rules
• Audited financials require licensed accountants — internal tracking differs from official statements
• Material decisions need professional review — DIY works for basics, not for high stakes

Core Principles

• Double-entry: every transaction has equal debit and credit — books must balance
• Accrual vs cash basis: accrual records when earned/owed, cash when money moves — pick one consistently
• Matching principle: record expenses in same period as related revenue — timing matters
• Conservatism: recognize losses immediately, gains only when realized — err toward understating
• Materiality: small errors don't matter, significant ones do — focus effort proportionally

Financial Statements

• Balance sheet: assets = liabilities + equity at a point in time — snapshot of position
• Income statement: revenue - expenses = profit over a period — performance summary
• Cash flow statement: where cash came from and went — profitability doesn't mean liquidity
• These three are interconnected — changes in one affect others
• Read all three together — each tells part of the story

Bookkeeping Basics

• Record transactions as they happen — catching up creates errors
• Keep receipts and documentation — proof matters for taxes and audits
• Reconcile bank accounts monthly — catch errors and fraud early
• Separate business and personal finances — mixing creates legal and tax problems
• Chart of accounts organizes categories — set up properly at the start

Cash Flow Management

• Profit isn't cash — you can be profitable and run out of money
• Accounts receivable is money owed to you — track aging, follow up on late payments
• Accounts payable is money you owe — manage timing strategically
• Cash flow forecast: project inflows and outflows weekly — avoid surprises
• Keep cash reserves — 3-6 months of expenses minimum for stability

Tax Fundamentals

• Track deductible expenses throughout year — reconstructing at tax time misses items
• Estimated taxes quarterly for self-employed — underpayment triggers penalties
• Depreciation spreads asset costs over useful life — immediate deduction vs long-term
• Understand the difference between tax avoidance (legal) and evasion (illegal)
• Deadlines are real — extensions to file aren't extensions to pay

Common Mistakes

• Mixing personal and business accounts — destroys liability protection and complicates taxes
• Not tracking small cash expenses — they add up to significant deductions
• Ignoring accounts receivable aging — old invoices rarely get paid
• Forgetting to reconcile — errors compound when not caught early
• Waiting until year-end for tax planning — many strategies require advance action

Key Ratios

• Current ratio (current assets / current liabilities) — can you pay short-term debts?
• Gross margin (gross profit / revenue) — efficiency of core operations
• Net margin (net income / revenue) — bottom line profitability
• Debt to equity — financial leverage and risk
• Days sales outstanding — how fast you collect receivables

Budgeting

• Start with revenue projections — be realistic, not optimistic
• Fixed vs variable costs — know which expenses scale with revenue
• Compare actual vs budget monthly — variance analysis reveals problems
• Zero-based budgeting: justify all expenses, not just increases — prevents bloat
• Budget for unexpected expenses — something will go wrong

Working with Accountants

• Organize documents before meetings — billable hours add up fast
• Ask questions until you understand — it's your money and liability
• Provide complete information — surprises during audit are expensive
• Regular check-ins, not just at tax time — proactive planning beats reactive filing
• Understand what they're filing on your behalf — you sign, you're responsible