Managing your business’s finances and revenue can be a full-time job, so much so that you may need to create a financial position to handle these duties within your small business.
However, many small businesses—especially businesses just getting started—prefer to handle this aspect of their business themselves, thus foregoing the help of an accountant to manage the company’s balance sheet and business transactions.
If you’re a small business owner who would prefer to monitor your company’s cash flow with your own two eyes, there are financial accounting equations that you should be familiar with. These fundamental accounting equations are rather broad, meaning they should apply to various types of businesses. Combined with a basic understanding of how accounting works, the equations will provide you with the figures you need to understand the viability and health of your business and to make more informed business decisions.
Whenever you post a transaction, you should practice double-entry accounting. Double-entry accounting requires you to post debits on the left side and credits on the right side of a ledger. The total dollar amount of debits and credits always needs to balance. All of the following equations stress the importance of double-entry bookkeeping.