Reasons of Losses

Profits and losses are two things which affect any small business more deeply. So, as a small businessman, if you are starting any new business or trading any goods, you should know what are the various losses and what are their reasons?  According to accounting terminology, " Loss means reduction of businessman's capital. Suppose, Mr. Rahim started his business with $ 754. His business is operated by his unemployed brother and his wife. He made a box for keeping money safe. When Mr. Rahim came to his shop after one week and counted money, it was was $ 320. Last week, he counted box money and it was $ 230. He wondered that he got just $ 90 by his from sale during week. Mr. Rahim was very intelligent. He totalled all purchased goods which he purchased in last week and it was $ 175. Now, all last week's goods were sold. He calculated and found that his business got loss of $ 85. But, he was very sad that when the margin of profit was 20%, then how can he get loss? Moreover, key of box's lock was in his pocket from last week. Now, he learned accounting seriously and find following reasons of his loss.

1st Reason : Utilize of Product for personal Use

Due to lack of accounting knowledge, Rahim's brother and his wife used product of Rahim's shop for their personal use without Rahim's permission. With this some of $ 85 loss was from this cause. Mr. Rahim told that all goods which will be taken by him or his wife must be recorded for finding drawing.

2nd Reason : Shortage of Purchase of Goods

Mr. Rahim also thinks that it may be possible that vendor gave him less goods when he bough last week. It is one of reason of his loss. For future, he thinks to return all such goods which be short quantity.

3rd Reason : Not to Taken Money from Customers

Due to not knowing accounting, Mr. Rahim's brother and his wife did not record of name of customers whether they gave money or not. It may be possible that some customers may cheat Mr. Rahim's brother and his wife during last week.

4th Reason : Goods Taken by Thieves

Due to lack of inventory management, Mr. Rahim's brother thinks that some of goods may be theft by thieves. So, in future, he ordered his brother to supervise the goods more seriously.

5th Reason : Keeping Money in Other Place

After deep inquiry, Mr. Rahim's brother told that he has remembered that $ 40 are in his pocket.

It means now $ 45 are  the net loss of one week trading to Mr. Rahim. Now Mr. Rahim sent brother and his wife to Accounting Education for learning accounting first for operating business.

If you are also like Rahim's brother, you should learn financial accounting first from here before operating any small business.

Above is very simple and true example of a very small business. Without knowledge of proper accounting, a big corporate may face the losses. So, knowledge of accounting will be your weapon to get safety from losses.