Choosing an accounting system is one thing. But after you've made that decision, you need to know what to keep tabs on—otherwise, your accounting system won't do you any good.

Accounts Receivable

You'll need to keep track of all accounts receivable, which is the money owed to you by customers. For each customer, you'll keep an individual list of accounts receivable. This will allow you to know how much you're owed in total and how much each customer owes you.

Accounts Payable

The money that you need to pay (your bills) is your accounts payable. You may owe money to suppliers and vendors or others from whom you've purchased merchandise, equipment, or services. If you keep a separate ledger account for each supplier or vendor, you'll be able to see exactly who is owed money and how much you owe at any given time. This will be especially valuable when you receive bills and second invoices, and you can look back and see if you've already made a payment.

Besides finding a competent and trustworthy bookkeeper and accountant, you will very likely need to have administrative assistance in your office. It's very important that you find someone whom you can trust with confidential information, including personal data on employees and client contact information.

General Ledger

The general ledger is the place to start organizing your financial statements. It summarizes data from other journals, including cash disbursements (your expense journal) and your sales and cash receipts journal. Here you'll find the balance between debits and credits when you finish posting your entries.

Balance Sheet

One of your key financial statements is the balance sheet. This will provide you with a snapshot overview of your business at any moment in time. Included on a balance sheet are all your assets and liabilities. The balance sheet will result after postings to the general ledger. Once adjusting entries have been made, the trial balance is ready for review by your accountant.

As the name would imply, the balance sheet will need to balance, meaning your assets will equal your liabilities plus your capital. If the totals don't balance, you'll have to look for a discrepancy or error.

Asset accounts on the balance sheet include current assets, which means anything that can be turned into cash easily. The balance sheet usually reflects your system of listing categories, starting with assets that have the most liquidity, such as cash and petty cash, and extending to the fixed assets, which include equipment, vehicles, furnishings, and so forth. Also included, although not on the following list, will be intangible assets, such as patents or trademarks. The balance sheet will likely include the following assets:

• Cash and petty cash

• Prepaid rent

• Cash in the bank

• Office supplies

• Investments (short-term and long-term)

• Vehicles

• Accounts receivable

• Land

• Reserve for bad debts

• Buildings

• Merchandise or inventory

• Equipment

• Prepaid expenses

• Furniture and fixtures

• Prepaid insurance

Also include categories for the depreciation of buildings, vehicles, and equipment. Among the liabilities you will include are the following:

• Accounts payable

• Interest payable

• Salaries payable

• Dividends payable

• Sales taxes payable

• Federal withholding taxes payable

• Mortgage payments payable

• FICA taxes payable

• Self-employment taxes payable

• Property taxes payable

• Unemployment taxes payable

• Short-term loans or notes payable

Essentially, this list will comprise all that you're obligated to pay, but haven't yet paid.

Profit-and-Loss Statement

This is the statement that will generate the most attention from prospective investors. It's also the one that you're most eager to read, simply because it shows your net income or loss and gives you an overall perspective on where the business stands in terms of making money and reaching your goals.

Also known as an income statement, this is very simply a final, rounded-off (not down to the penny) summation of what you've spent in each of several areas and what you've earned. Generally you will list the following:

• Sales

• Cost of goods sold (This will include the cost to buy the goods you sold during the period for which you're preparing the statement, less any discounts offered by vendors for businesses with an inventory; start with your beginning inventory and add the sales purchases, then subtract your ending inventory.)

• Gross profits (This is the difference between the net sales and the cost of goods sold.)

• Expenses (This includes salaries to your employees, advertising, rent, payroll taxes, insurance, depreciation, repairs, office supplies, and all other expenses.)

• Net income (This is your gross profit less your expenses.)

If nothing else, profit-and-loss statements will show you how quickly expenses can cut into your profits.