Budgeting & Accounting

What is Accounting?

A system of tracking, recording, summarizing, and analyzing business and financial transactions.

What are the aspects of Accounting?

Maintaining financial records, verifying the accuracy of financial transactions and statements, and reviewing reported financial figures.

Why is keeping accurate records important in Accounting?

It helps avoid tax discrepancies, bankruptcy, failure, revenue loss, and other negative situations.

Accounts Payable

The balance due to a creditor on a current account.

Accounts Receivable

The balance due from a debtor on a current account, important as it can cost businesses money when debtors fail to pay.

Accounting Equation

Assets - Liabilities = Net Worth.

What are Assets?

Items of value a business owns, including cash, property, equipment, and intangible assets.

What are Liabilities?

Items a business owes, such as debts.

Owner’s Equity

Net worth in accounting, calculated as Assets - Liabilities.

Accounting Transactions

An event that impacts a business’s financial statements, having a credit and a debit.

What is a Credit in accounting?

An increase in the accounting balance.

What is a Debit in accounting?

A subtraction from the accounting balance.

What is the purpose of an accounting journal?

To capture a detailed record of transactions in chronological order.

What is a General Ledger?

A full record of all accounts and transactions organized by account, tracking overall balances.

Cash Flow Method

Records transactions when the money actually enters or exits the account.

Accrual Method

Records transactions when they occur, regardless of when cash changes hands.

What is a Business Budget?

A detailed estimate of income and expenses for a specific period of time.

Characteristics of a Functioning Budget

Define SMART goals, identify time frame, revenue, and expenses.

Fixed Expenses

Costs that remain the same each month.

Variable Expenses

Costs that fluctuate each month and depend on production and sales volume.

What is a Startup Budget?

A budget that reflects initial costs and does not look the same after the initial year.

Sales Forecast Budget

Predicting sales goals for a specific period.

Operating Budget

A regular, ongoing budget for month-to-month and year-to-year expenses.

Cash Budget

A budget focused on cash-flow analysis.

What is Payroll?

A list of a business’s employees and their compensation.

Payroll Register

Includes employee earnings, tax deductions, and benefits received.

Why must employee compensation be recorded in accounting?

To ensure businesses have the finances for continued operation.

Minimum Wage in Texas

$7.25 federal and Texas minimum wage.

What is Salary?

A fixed amount paid independently of hours worked, often more predictable for business owners.