Common questions

How can accounting help me make money?

Accounting tells you whether you are making money. With a profit and loss statement each month you can see your position quickly, and if you are losing money you can raise prices or cut expenses long before year-end, so the year as a whole is still profitable.

Can’t I just write cheques, make deposits and file taxes?

If that is all you do, that is probably all you are doing, and not making a profit. Even a very small business needs to know what share of revenue goes to marketing, labour and supplies each month. Without tracking those, you are hoping for a profit rather than managing one.

Can’t I hire a bookkeeper to do the accounting for me?

A good bookkeeper or accounting program organizes your records quickly, but you still need the basic principles to use what they give you, and to make the changes that keep your business on track.

What matters more, the income statement or the balance sheet?

The income statement. It tells you whether you are making money and sets out your costs and expenses.

How can a balance sheet help me?

It shows how your assets are being used: whether inventory is too large, receivables are growing, or your debt is getting too high compared with your equity.

Do I need to understand the depreciation formulas?

No. Let your accountant work them out precisely at year-end. Rough figures are fine in your monthly profit and loss statements.

Do I need a balance sheet every month?

A very small business can manage without one. Every business, even a part-time one, needs a monthly profit and loss statement, and if inventory or receivables matter to you, a monthly balance sheet will show changes you should know about.