The Basics of Accounting

Welcome to the first chapter of the masterclass on business management on Tulipemedia ! If you've read Chapter 1, you already know why we take a holistic approach to transforming entrepreneurs into business management "Swiss Army knives." Here, we dive into the first major part: basic accounting. This isn't a dry course on tax rules; it's just a practical introduction to understanding how accounting becomes a daily tool for running your business.

Please feel free to comment with your questions or feedback at the bottom of the page.

Why start with accounting? The foundation of all management

Think of your business like a restaurant: you serve food (your products/services), manage ingredients (suppliers), and serve customers (sales). Without accounting, it's like cooking without a recipe or inventory—you risk wasting food, overpaying, or not knowing if you're making a profit.

Basic accounting is not just a legal requirement (declaring VAT, preparing the annual balance sheet). It is the starting point for:

• Capturing everyday reality : Record purchase invoices (e.g. ingredients for a restaurant) and sales to see what comes in and goes out.
• Avoid surprises : Instead of waiting for the annual balance sheet, basic monthly monitoring reveals early if you are losing money.
• Building holistic bridges : This data will later feed into management control (e.g.: calculating the cost of a dish) and finance (e.g.: assessing whether you can borrow to expand the restaurant).

Basic Concepts: Balance Sheet, Income Statement, and Journal

Let's get down to business, without excessive jargon. Accounting is based on three simple pillars:

1. The Journal (or Journal-Book) : This is the company's daily "logbook." Every transaction is recorded there: purchase, sale, payment.
   • Example of a restaurant: you buy €100 worth of ingredients from a supplier? Accounting allows you to record this transaction as "Debit: Purchases (expense account) / Credit: Bank or Suppliers (payables account)." In other words, you record the fact that goods have entered your business via a debit expense account, and you record the fact that, in return, a debt has been issued in the Supplier account, for example. This debt will be settled later, via another line. But don't panic, we'll come back to this in a dedicated article.
   • What's the point of "historicizing" everything? It keeps a legal record, but also an accounting record in the interest of the company itself, which will be able to use it to carry out retrospective audits, and to create dashboards that will be interpreted to manage the company.
2. The Income Statement (or P&L – Profit & Loss) : A summary of income and expenses over a period (month, year).
   • Basic structure: Revenue (CA) – Expenses (purchases, salaries, rent) = Result (profit or loss).
   • Example: In a restaurant, turnover of €5,000 in one month; expenses: €2,000 ingredients, €1,500 salaries, €800 rent = Result: €700 profit.
   • Practical interest: Do we know if we are making money?
3. The Balance Sheet : A snapshot of what your business owns and owes at a given point in time.
   • Structure: Assets (what you have: cash, inventory, equipment) = Liabilities (what you owe: debts, equity).
   • The balance sheet is completely different from the income statement, and this difference is a concept that is very poorly understood by most beginners in management and finance, and also by entrepreneurs.
   • The balance sheet, unlike the income statement, tells the story of the company, and shows what it owns on one side, what it owes on the other, and what it owes to finance its development, which is located in what it owns. Again, don't panic, all these concepts will be explained later in dedicated chapters.
   • Restaurant example: Assets: €2,000 in the bank, €1,000 in ingredient inventory, €5,000 in kitchen equipment. Liabilities: €3,000 in trade payables, €5,000 in equity. Assets (what the business owns) must always be balanced with liabilities (what keeps the business running, and which is also what it owes, for example, to its suppliers, shareholders, etc.).
   • Holistic Bridge: A healthy balance sheet (positive equity) informs corporate finance – e.g., Is a bank loan possible to open a second restaurant? Conversely, negative equity reflects negative previous results. In this sense, the balance sheet reflects the company's history, while the income statement shows a company's performance over a given year.

These tools are interconnected: The journal feeds into the income statement and balance sheet. You don't need to be an accountant; software like QuickBooks, Pennylane, and Dext automate this if you file invoices daily, with the help of your accountant. However, even if these automated tools exist, it's important to understand the fundamentals in order to then interpret the documents submitted to you through these programs, and also to manage the business.

Conclusion: accounting, the first step towards holistic management

Now you have the basics: Journal, Income Statement, Balance Sheet – not as obligations, but as tools to avoid pitfalls and connect to other areas.

Feel free to subscribe to the blog and comment, and I'll see you soon for the next chapter, where we'll start getting our hands dirty!

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