5 Easy Ways for Travel Agents to Learn the Accounting Language

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Another Beaufort, NC sunset

Learning the basics of accounting is no different that picking up some key phrases from another language before traveling internationally.

It really should be a breeze for the travel pro!

You wouldn’t set off to France without a bit of French or to Russia without some basic Russian phrases, would you?

Of course not!

You shouldn’t set off on the entrepreneurial adventure of building a travel agency without knowing a little of the language of business:

Accounting.

Accounting…ugh!

Exciting, I know…but, that little bit of accounting will help you immeasurably in understanding the details of running your business.

You really can’t run that successful business without some accounting skills.

How can you quickly ramp up your accounting knowledge?

Follow these five relatively easy steps and you’ll be on your way to accounting fluency in no time:

1. Know the definition of accounting

Seems simple, doesn’t it?

It does, but many travel entrepreneurs would no doubt be hard pressed to objectively define accounting.

I did it in AccountantSea’s first ever post (seeing that this is only the second post, I remember it well). The definition is truly simple and knowing it will demystify accounting just a bit.

What is it?

What is accounting?

Accounting is a system for tracking and reporting the results and activities of an organization…no more, no less.

Simple isn’t it?

Read more in Just What is Accounting Anyway?

2. Understand the basic financial statements

One of the main tools accountants use to report on the results and activities of an organization is a set of documents known as financial statements.

These document will surely be familiar to most of you in some form, but there’s a standard set of four, known as the:

  • Balance Sheet
  • Statement of Owner’s Equity
  • Income Statement
  • Statement of Cash Flows

I’ll go into more detail on each one of in future posts, but today we’ll just concentrate on two:

  • Balance Sheet
  • Statement of Owner’s Equity
  • Income Statement
  • Statement of Cash Flows

The Balance Sheet and the Income Statement are the two that will probably be most familiar to you and they are the two that you’ll see, use, and need the most.

I’ll have future posts on both, but here’s a quick summary:

The Balance Sheet contains the total amounts of an organization’s assets, liabilities, and owners equity at a single point in time. The neat thing about the balance sheet is that it, well, balances.

Assets will always equal liabilities plus owners equity.

You can state it:

A = L + OE

That’s called the accounting equation. It’s simple algebra and it is about as hard core as math gets in accounting. If you know L and OE you know A…you get the idea…

The Income Statement might be the most familiar to the non-accountant.

It is simply a report that details the types of money made during the year with the money spent during the same period of time. 

You can also visualize the income statement as a simple equation. Revenues minus expenses equals net income.

You can state it:

R – E = Net Income

The thing to remember about an Income Statement is that it details all the income and expenses for an entire period – usually a year – where a Balance Sheet reports assets, liability, and equity at a certain point in time.

The other keys to learning the accounting language involve understanding the elements of these two basic financial statements.

3. Wrap your mind around assets and liabilities.

It seems simple doesn’t it?

Everyone knows what an asset is don’t they. Well, it seems simple until you are faced with actually having to write down a definition.

What is an asset?

An asset is a thing, a resource. It is something you control – tangible or intangible – that brings value now and in the future.

What’s one of any travel agent’s most important assets?

Her computer!

Why is a computer an asset?

You control it. It brings value now, and it will continue to bring value in the future.

What is another asset?

Cash!

That one’s self explanatory.

What is a liability?

A liability is an obligation of an organization that will likely result in some transfer of assets to another party.

What is a common liability for a travel agency?

The amount an agency owes an employee is a liability to the agency.

Any debt is likely a liability.

Assets and liabilities…pretty easy, don’t you think?

4. Get a grasp on equity

Equity is a tougher concept than assets and liabilities. But, you’ll like it because it will give some insight into the value of the organization to its owners.

Equity is essentially the amount left when liabilities are subtracted from assets.

Remember the accounting equation:

Assets = Liabilities + Equity

Do some quick and simple algebra:

Assets – Liabilities = Equity

Equity can also be thought of as the value of an organization to its owners. And, it is also the difference of revenue and expenses totaled over the life of an organization.

Here’s an example:

Let’s say you began operations as XYZ Travel Agency on Jan. 1, 2014. You earned $25,000 in commissions in your first 12 months of operations. Also during this first 12 months you have $15,000 in expenses. At Dec. 31, 2014 you’ll have equity of $10,000.

A simple example, but it will do for us today.

Now for our last way to learn accounting.

5. Identify with income and expenses

This might be the easiest of the bunch and probably the area with which you’ll most easily identify.

What is income?

Income is an increase in the assets as the result of the activities of an organization.

Commissions that an agency receives from a supplier or host agency is income to the agency.

What asset is increased?

Cash – our favorite asset.

What is an expense?

An expense is an event in which an asset is consumed or a liability incurred to obtain something needed in the course of business.

Cash paid out for the printing of business cards or the hosting of an agency website is an expense.

And there you have it, 5 easy ways for a travel agent to learn accounting.

1. Know the definition of accounting
2. Understand the basic financial statements
3. Wrap your mind around assets and liabilities
4. Get a grasp on equity
5. Identify with income and expenses

It’s a start, and it’s no different than picking up a few key phrases from the language of the country you are preparing to visit!

The Travelers Guide to Tax Deductions, get it just for signing up!

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