Accounting 101

Brittany has just started her own business, and she wants to know how to determine profits. Dave has the answer, plus a little good advice, for the budding entrepreneur.

QUESTION: Brittany follows Dave on Twitter, and she has a small business question. She asks how to determine her profits as the owner and only employee of a small business. Dave gives her the simple answer, along with a little extra advice.

ANSWER: Your income minus your outgo is profit. What you take in minus your expenses equals profit. Period. This is regardless of how many employees you have or how big your business is. It’s that simple. What you take in minus your expenses — your revenues minus expenses — is profit. That’s a basic, Accounting 101 definition of profit.

You also need a separate checking account for your business. That’s the way to tell what’s going on. When you co-mingle it with grocery money and things like that, you can’t keep up with what’s happening with your business.

 

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