Accounting 101: Foundations Every Small Business Owner Should Know
If the phrase double-entry accounting makes your eyes glaze over, you’re not alone. But here’s the truth: a little accounting knowledge goes a long way in helping you feel confident, grounded, and in control of your business finances.
In this post, we’re breaking down the basics of accounting — minus the jargon and old-school textbooks. Whether you're DIY-ing your books in QuickBooks or just want to know what your accountant is talking about, consider this your flowy intro to the fundamentals.
Cash vs. Accrual Accounting
Let’s start with how you track your income and expenses.
Cash accounting records money when it actually moves. You record income when it's received and expenses when they're paid. Super simple, and most small businesses opt for this method.
Accrual accounting records income when it’s earned and expenses when they’re incurred — even if cash hasn’t moved yet. This method gives a more accurate picture of how your business is doing over time.
QuickBooks Tip: QuickBooks lets you toggle between cash and accrual reports with a single click. As your business evolves, consult with your business advisors on the method that best serves your goals.
The 3 Financial Statements to Know
You don’t need to become a CPA to understand your financials, but these three essential reports are key:
Profit & Loss (Income Statement): Shows your revenue and expenses over a period of time. It answers: Am I making money?
Balance Sheet: A snapshot of your business’s financial position at a single point in time. It shows your assets, liabilities, and equity. It answers: What do I own and owe?
Cash Flow Statement: Tracks how money flows in and out. It helps you stay on top of actual cash in the bank — not just what’s “earned.”
Double-Entry Accounting: The Basics
Don’t worry, this isn’t a test. But it is how every transaction gets recorded.
In double-entry accounting, every transaction affects two accounts. One account is debited, the other is credited…so everything stays in balance.
Here’s a quick reference chart:
For example, let’s say you buy $500 of inventory with a business credit card:
Inventory (Asset) goes up → DEBIT
Credit Card Payable (Liability) goes up → CREDIT
Or you pay rent:
Rent Expense goes up → DEBIT
Cash goes down → CREDIT
We run through more examples in this video!
QuickBooks Makes It Easier
The good news? You don’t have to manually calculate debits and credits anymore (I still have flashbacks of doing handwritten T-charts in college). Accounting software like QuickBooks does the behind-the-scenes work for you, especially if you have a clean Chart of Accounts and regular bookkeeping habits.
All you need is a foundational understanding of what’s happening under the hood so you can make informed decisions, ask good questions, and stay grounded in your numbers.
Want More Support?
If you want hands-on help getting your books set up the right way from the start, we offer a QuickBooks Setup service that includes a clean chart of accounts and a personalized tutorial tailored to your business. We’ll also be by your side for guidance along the way.
When you understand how your money moves, you can make decisions that support your goals — without stress, complicated spreadsheets, or burnout. Start small. Stay curious. We’ll help with the rest.
For free additional resources, check out our Accounting Cheat Sheet, and video where we explain these concepts in further detail with examples.
Financial clarity creates business freedom. Whether you need full-service bookkeeping or just a monthly check-in to make sure you’re on track, I’d love to help. Contact us to schedule a free consultation!