If you want your business to have a prosperous future switch to accrual accounting.
When we are dealing with Excel spreadsheets and mountains of receipts, it’s easy to forget that the purpose of accounting systems is to help owners make better business decisions. Recording transactions, preparing financial statements and analyzing data help us determine which activities are worth pursuing.
There are different ways to record transactions and keep track of business activity. One way is to record a transaction whenever cash comes in or goes out. This is known as cash accounting and it’s a system used by millions of small businesses. It asks simply, “Did we spend less cash than came in this month? If so, great!” Cash-accounting systems are appropriate for the smallest businesses, with limited transactions and not much need for analysis. A single consultant working out of their home and taking on just a few short-term projects at a time is probably fine with a cash-accounting system.
If you are beyond this stage or have an interest in growing your business, then you should make the switch to an accrual-accounting system. Accrual accounting makes a better effort at matching revenues and expenses. Recording a specific transaction, like a sale, is done when you send an invoice to a client or ship out their order rather than when the cash comes in. Expenses related to the production of the good sold are also recorded at the same time the revenue is recorded, even if you pay for the expenses later.
Who is Mike Periu?
Mike Periu is the President of Proximo, LLC, a company that markets education and training programs to small business owners, entrepreneurs and consumers.
Mike Periu has been interviewed over 500 times for broadcasters including CNN, NBC TVE, RTE and others. Mike is a contributing author to OpenForum, Yahoo! Finanzas and the Huffington Post.
Mike graduated from Georgetown University in Washington, DC. His degrees are in Finance and International Business. In addition to his work Mike is also on the Board of the Council for Economic Education.
