This research describes how to establish successful accounting practices for a small retail outlet that does not require the services of a full-time accountant. Poor financial record keeping is recognized as one of the major factors of small-business failure in the US (Converso). Although business owners may keep receipts and similar paperwork on hand, the attitude toward records is often negative because they are considered necessary evils in keeping with government oversight and tax planning. But Ragan (4) makes the point that business records are actually a tool of business management. By consistent updating of and reference to various financial statements, collectively known as an accounting system, the business owner can track the current status and financial health of a firm and adjust operations or money allocations as appropriate to resolve problems that may be perceived. Good financial record keeping provides the basis for making informed business decisions and helps prevent errors, omissions, fraud, abuse, and carelessness.
Statements of financial condition reflect what is known as the accounting equation, or the relationship of assets to liabilities and capital, rendered thus: Assets = Liabilities + Capital (Ragan 5). Elements of all financial statements fall within one of the three categories of the equation.
An asset is what is owned, and a liability is what is owed. The difference between assets and liabilities is the amount of capital, or equity. In bookkeeping terms, the accounting equation forms the basis for constructing financial records in two columns, with assets on the left side and liabilities and capital on the right. The two sides of the equation are always in balance, which means that for every asset there is a balancing liability that must be accounted for. Financial records reflecting the condition of the equation provide information about how assets and liabilities are being balances.
The first rec...