Accounting Principles for Business Owners
Put revenue and costs in the periods where they belong.
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Start with the question in front of you.
Owners who want to understand the reasoning behind accounting decisions.
This NP guide combines plain-language explanations, fictional business examples, and practice activities. Read the example, try the exercise, then compare your reasoning with the explanation provided.
What you will learn
- Separate business activity from personal activity.
- Recognize timing, measurement, and estimate issues.
- Document the assumptions behind your reports.
A useful idea before you download
Useful reports need consistent boundaries, supported amounts, and clear timing. The guide connects these ideas to business decisions through revenue, expenses, estimates, and an original month-end example.
Follow the numbers
Paying $1,200 for twelve months of insurance does not automatically make all $1,200 an expense in the first month. In a simplified accrual example with even coverage, one month uses $100 and leaves $1,100 prepaid.
Depreciation: where each number comes from
- Given cost: $13,200.
- Estimated residual value: $1,200 after five years.
- Depreciable cost: $13,200 − $1,200 = $12,000.
- Annual expense: $12,000 ÷ five years = $2,400.
- Monthly expense: $2,400 ÷ 12 = $200 per full month.
After one full year, accumulated depreciation is $200 × 12 = $2,400. Carrying amount is $13,200 original cost − $2,400 accumulated depreciation = $10,800, assuming no other adjustments. After all five years, the scheduled carrying amount is $1,200, the assumed residual value. Carrying amount is an accounting balance, not a promised resale price.
How to support your own numbers: Use the purchase invoice and asset register for recorded cost, documented estimates for useful life and residual value, the date the asset became ready for use for timing, and the depreciation schedule for the charge already recorded. Residual value means estimated value at the end of the useful life. These are simplified book examples using straight-line depreciation and full months; tax calculations can differ.
Try this in your business
Review a prepaid cost, an unpaid bill, and a customer deposit. Ask what has been earned or used by the reporting date.
Keep a note of the evidence you used and the question you still need to resolve. Bring that question to your next bookkeeping review.
How to use the guide
- Read the explanation and worked example.
- Complete the practice before checking the answer.
- Choose one action for your next financial review.
A common question
Does this guide replace a formal accounting policy?
No. It explains the concepts and questions behind a policy. The appropriate treatment depends on the applicable reporting framework and the facts of the transaction.
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Get the Free GuidesEducational material with illustrative examples. Apply the appropriate rules and facts to your business. © 2026 Net Profits Consulting LLC. We Count More Than Numbers.
