Accounting Basics for the Fashion Start-Up

So, you’ve decided to set-up your own fashion business. But do you know how to get started?

The world of fashion is truly fun, exciting, glamorous, and rewarding. As a fashion enthusiast, you have probably heard a lot of stories of successful fashion designers who started their journey in this field by selling garments at a fashion store and went on to become one of the most famous in the industry, which inspired you to set-up your own fashion firm. But just like any business, starting your own fashion store is more than just coming up with a few sketches or selling a garment. It really requires a lot of planning and good financial brains to make it work.

Of course, while you can hire your own accountant or bookkeepers Melbourne to do all the financial work for you, a basic understanding of finance and accounting is still crucial.

Accounting Basics

So what do you need to know?

Accounting is a broad topic, which encompasses many areas, such as finance, management, auditing, and taxes. But in order for you to understand these things fully and start executing your plans effectively, you must first learn the basic language in this field.

Working Capital – It’s the available amount of cash and liquid assets of a company to fund its daily operations. It’s calculated by deducting the company’s current liabilities from its current assets.

Assets – These are the things that a company or an individual owns. They can be in a form of cash, liquid items, accounts receivable, office equipment, and other properties.

Liabilities – These are obligations of a company. They are the amounts that a company owes to its suppliers, creditors, and other companies for a transaction made. Common forms of liabilities are accounts payable, loans payable, and income taxes payable.

Accounts Receivable – This is the amount of money owed to a company by a customer (individual) for goods or services that have been delivered and/or used, but not yet paid for. Accounts receivables are often short-term, and limited by credit limit. They are also often recorded as assets.

Accounts Payable – This is the amount of money a company owes to its suppliers for the items and services purchased on credit. Accounts payables are found on balance sheet and often recorded as liabilities.

Balance Sheet – Also known as a statement of financial position, a balance sheet reveals the company’s financial health. It contains the company’s assets, liabilities, working capital, and net worth (equity) at a specific point of time.

Credit – It’s an accounting entry that may either decrease an asset or expense account, or increase a liability or equity account on a company’s balance sheet.

Debit – It’s an accounting entry that may either increase an asset or expense account, or decrease a liability or equity account on a company’s balance sheet.

We understand if you become a bit confused with all the terms mentioned above. Learning accounting is not an easy task, but with patience, effort, and willingness to learn, it’s entirely possible to understand and master it. So start learning the language now, and use it as an advantage when running your own fashion business.