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Accounting 101 for Internet Marketers – Part One

After being a public accountant for five years, I have come to the conclusion that I am part of the minority when it comes to grinding through numbers. Sure, everyone loves to see a big number on their bank statements at the end of the month or receiving a $ 100,000 affiliate check, but does that mean your company will be in existence at the end of the year . . . the answer is NO.

Over the next four articles I am going to break down the accounting process to its simplest form. Don’t expect that you will be able to prepare your own financial statements or tax returns by the end of the series, that’s not the point. The point of the series is to teach you the basics so you know how to analyze your business, keep proper records, hire the right people, and report to the IRS at the end of the tax year. This four part series will consist of the following topics:

Part 1 – Understanding the Accounting Process
Part 2 – Record Keeping and Reporting
Part 3 – Hiring a Bookkeeper and/or Accountant
Part 4 – Basic Lesson on Financial Statement Analysis

Understanding the Accounting Process
By its very definition, accounting is the systematic recording, reporting, and analysis of financial transactions of a business. Without proper accounting your business may survive, but certainly not as efficiently or as profitably as it could. A solid set of accounting records or “books” need to be maintained so a business owner knows, at a minimum, monthly income, expenses, assets and liabilities. This information is absolutely necessary to make informed business decisions.

The accounting process begins when a transaction occurs. A transaction is defined as an exchange or transfer of goods, services, or funds. This could be a purchase, sale, refund, chargeback, loan . . . you get the point. All these things have a place in your accounting records and should be entered as close to the date of occurrence as possible. Financial reports are only as good as the accuracy and timeliness of the data entered so don’t wait too long to enter the information.

Being that most internet marketers are totally consumed on creating product, promoting, and building lists, it is understandable that you are not going to update the records daily (unless you have a bookkeeper which will be covered in part 3). However, at a minimum, accounting records should be updated monthly. This allows you to track the progress or decline of the business and identify and correct the causes of any shortcomings. We will cover this topic in more depth in part 4.

Where is the information derived from, you ask? Generally, you would obtain information from bank accounts, PayPal accounts, credit card statements, and merchant statements. All businesses should have accounts separate from their personal accounts to accurately track income and expenses and limit their liability in case of an audit. This will be covered in part 2.

At the end of twelve months all this information needs to be submitted to your accountant to prepare the company tax return, personal tax return, and 1099’s for affiliates and other contractors. The more accurate and organized your file is the less painful and expensive it will be. I assure you, chasing down affiliates and contractors for their tax ID number on April 14th is no fun.

So in conclusion, it is absolutely necessary to follow the accounting process to truly understand your business and ensure you are profitable and not expending more than you are bringing in. In the next article we will discuss how to properly keep records, statute of limitations (how long you need to keep records), outsourcing, and dates every entrepreneur needs to know.

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By John Russo
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This article first appeared in the February 2009 issue of the MarketingDotCom newsletter. You can get a free copy of the latest issue for the price of shipping at http://the7figuresecrets.com

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