Business owners either handle their accounting themselves or they hire someone else to do it. In general, startups and sole proprietors choose the first option to reduce their expenses. Even if you do hire an accountant, you must have a basic understanding of what is involved. Start by learning about the main accounting types and five major accounts, so you know how to read financial reports.
There are two main types of accounting and they include:
Generally Accepted Accounting Principles (known as GAAP Accounting). Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
Cash Basis Accounting, Cash basis refers to a major accounting method that recognizes revenues, and expenses at the time cash is received or paid out.
The five main types of accounts are assets, liabilities, equity, revenue, and expenses. Each category can be further broken down into several sub-categories.