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5 Common Questions You Should Automatically Have Answers To As You Climb The Accounting Ladder

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There’s no doubt that accounting can be a bit of a mind-bender. Accounting mistakes happen to even the most experienced business owners. As a complex subject, it’s only natural to have questions.

Below are 5 common accounting questions that could make any accountant want to pull their hair out. But hey, you’re just right in time to find your answers from the FO blog, let’s dive in✨

What are the accounting terms I am familiar with? 

Don’t worry if you don’t know all of the terms. Instead, to get started, become acquainted with the following key terms: 

  • Cost of goods sold (COGS): An expense that reflects how much it costs you to produce your items. COGS is a critical aspect in determining your company’s earnings. 
  • Debits and credits: These are equal but opposing entries in your books (i.e., one increases an account and the other decreases the opposite account). 
  • Inventory: This consists of raw materials in storage, things in the manufacturing process, and finished commodities for sale. 
  • Assets: These are physical (tangible) or intangible (intangible) properties that offer value to your firm. 
  • Liabilities: The money owed by your company. You can have both short-term liabilities that are due within a year and long-term liabilities that are not due within a year. 
  • Equity is the value of your company after deducting liabilities from assets. 
  • Revenue: The amount of money earned by your company from sales. 

How should I record all transactions? 

One of the first decisions you must make when setting up your books is how to record transactions, and there’s only one answer, Accounting Software 

Accounting software to handle your accounts is a decent compromise between manually entering transactions and hiring an accountant to do it all. Using software simplifies the way you track incoming and outgoing funds and aids in the ongoing organization of your books. You can use software to automate your record-keeping duties and then turn your books over to an accountant for the more intricate accounting requirements (e.g., tax preparation). 

Check out the FavoredOnline resource center for intermediate and advanced resources on how to leverage accounting software.

How do debits and credits work? 

When transactions occur, you must ensure that your books accurately reflect the transaction. Consider debits and credits to be two sides of a scale that must balance equally—if a debit increases one account, a credit must decrease the opposite account. 

Debits increase the asset and expense accounts. Debits reduce liability, equity, and revenue accounts. Credits do the exact opposite. 

Credits enhance liability, equity, and revenue accounts. They also reduce the asset and expense accounts. 

Debits and credits are the foundation of double-entry bookkeeping, yet they can be difficult to understand, let alone memorize. Our handy chart should help clear up any residual doubts about debits and credits. 

What are my sales tax responsibilities? 

If your company has a physical presence in a state that collects sales tax, you must collect it from customers at the moment of sale. Sales tax is a proportion of the customer’s purchase. The sales tax rate that you must collect is determined by your state, county, or city. 

After collecting sales tax from clients, remit it to your state or local government and record it in your accounts. 

Where should I report my profit? 

An income statement can be used to report your company’s profit. Your small business income statement, also known as a profit and loss statement, summarizes your company’s profits and losses over an accounting period. 

The income statement is broken down into three major sections: 

  • Revenue\sExpenses 
  • Profit or loss net 

An income statement is one of three major financial statements you might prepare to monitor the financial health of your company, get outside financing, and make financial decisions. The small business balance sheet and cash flow statement are the other two financial statements. 

Have you got answers similar to these, have you got more questions about your accounting career? On Favoredonline, you can find mentor links matched to your professional path to allow you to benefit from the expertise of a mentor.

Got more account related questions? Find the mentor’s links tailored to your career path and enjoy the leverage of an expert on the platform. Don’t forget to share

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