accountant

# 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