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Businesses rely on a steady influx of money in order to survive and grow. Tracking income and expenses on a regular basis allows businesses to manage available monies and plan for future projects. Accounting procedures for tracking money flow provide business owners with valuable information regarding a company’s financial stability and potential for growth.
Revenues and Expenses
Accounting procedures track revenues and expenses by recording daily transactions on an income statement ledger. An income statement covers an accounting cycle, which can range anywhere from one to 12 months depending on how a company sets up its bookkeeping operations. Income statements keep a record of net sales, operating costs, operating profits, income tax expenses as well as investment earnings and interest costs due to creditors. By tracking revenue and expense money flows on a daily basis, businesses can determine profit gains and losses within each accounting period.
Assets & Liabilities
The amount of assets and liabilities a business has determines the amount of equity built up in the company. In order to track assets and liabilities, business accounting procedures use a balance sheet ledger to monitor changes on a periodic basis. At the end of each accounting cycle, businesses transfer net income amounts from the income statement over to the balance sheet ledger. In effect, bookkeepers recalculate asset and liability amounts based on any decreases or increases in cash flow during a previous accounting period.
Cash Flow Statements
Cash flow statements track incoming and outgoing monies at the end of each accounting cycle. These statements list individual items, such as operating costs, sales revenues and employee salaries. Information recorded in cash flow statements is combined with a company’s existing capital reserves, such as cash, monies owed to a business and investment earnings. Cash flow statements allow businesses to track cash transactions and cash balance amounts within different time periods. By recording cash flows, businesses can track past and present balance amounts as well as make future budget projections.
Accounting Entry Methods
Procedures for tracking money flows use either a single-entry or double-entry accounting method. Single-entry accounting is more suited for smaller businesses that don’t normally conduct credit transactions or track investment earnings. This method tracks standard cash transactions and keeps records on income expenses. Double-entry accounting uses a more complex tracking system that involves debit and credit accounts. This method is best suited for businesses that need to track transactions that involved credit accounts, stock share accounts or any transactions involving long-term cash outlays or returns on investment. The debit-credit entry system allows businesses to track cash flows over extended periods of time.