9 Types of Accounts Your Business Needs
(Even If You Don’t Realise It)!
As a business owner, you’re probably pretty good at doing what it is your business does. Your core competency. If you weren’t you probably wouldn’t have started a business in it! But being able to deliver an amazing service and running a business are very different things, and there are some basic skills you need to have if you want your business to be successful.
Just one of those is bookkeeping. More specifically, understanding the different types of ‘accounts’ used to organise your business and keep everything running smoothly. Even if you outsource your bookkeeping (as many people do), you still need to have a basic understanding of a few things. So today, we’re going to share the 9 types of accounts your bookkeeper will use, and what each of them means.
Cash Account
This is just another word for your bank account. All your transactions will go through your bank, and therefore your cash account. This account is so important that a lot of bookkeepers keep two records for it – one for cash receipts and one for cash disbursements to track the activity.
Accounts Receivable
If your company sells products or services that aren’t paid for immediately (at the point of delivery), then you have ‘receivables’ that you will need to track. Accounts receivable is basically all the money you are owed by customers, broken down by customer and invoice. This makes keeping it up to date a critical job, as it’s where you will get information for chasing overdue payments and sending accurate invoices.
Inventory
If you sell physical products, then for accounting purposes all unsold stock is essentially money sitting on a shelf. So, it needs to be tracked carefully to make sure you aren’t losing money. As well as tracking stock as you sell and order it, you should also periodically check your physical stock against the numbers in your accounts.
Accounts Payable
No one enjoys seeing money leave their business, but it’s an essential part of business, so it needs to happen. But just knowing that money is going out isn’t good enough on its own. You need to know where it’s going, what it’s being spent on and how much you have left. Accounts payable gives you a clear view of everything. Good bookkeeping helps ensure that you make timely payments and that you don’t end up paying late. Having a good grasp on what you owe and when, also means you could qualify for discounts with your suppliers if you pay early – so it’s worth knowing about!
Loans Payable
If you have borrowed money to buy equipment, vehicles, or to pay bills, then this account tracks the loans. That includes payments, balance, interest, and due dates – so all the important information! This one is usually more important for startups, but any business in a growth phase may also need to take out and monitor loans.
Sales
The sales account is where you track all incoming revenue. That includes things you sell, commission and any other money coming into your business. Recording sales in a timely and accurate manner is critical to knowing where your business stands.
Purchases
This account is where you keep track of anything you buy for the business, such as raw materials or finished goods for sale. This is also where you would include any outsourcing you do that’s essential for your sales or is part of your service. For example, if you white-label part of your offering to a freelancer. This account is what we use to calculate the ‘cost of sale’, which in turn helps us work out your bottom line. So, it’s important that this account is kept up to date.
Payroll Expenses
This account represents the biggest cost for many businesses. No matter how much you’d like it, people don’t work for free. You use this account to keep track of what has been paid and what is owed. You then use this account to calculate your tax and National Insurance liability, as well as other reporting requirements. Shirking those responsibilities will put you in serious hot water, so it’s best you keep an eye on it!
Retained Earnings
This final account tracks any of your company’s profits that aren’t reinvested in the business and aren’t paid out to the owners. Retained earnings are cumulative, which means they appear as a running total of money that has been retained since the company started. Managing this account doesn’t take a lot of time, but it’s important for tenders and investors who want to track how well the company has done over time.
Phew! That was a lot to get through. It’s no surprise that many business owners think of bookkeeping as a chore. But if you have the right systems in place and understand how to use the data you have, it becomes a lot more straightforward. A good bookkeeper can work closely with you to make sure you have everything you need and provide you with all the information you need to run your business effectively. And that’s exactly what we do at GB Bookkeeping. If you would like to find out more about our services, just get in touch with the team today.