Nothing conveys the financial health of a business more clearly than clean and up-to-date accounting records. Good accounting is good for business because it provides you with financial information about the business.
The role of accounting is to provide a systematic and detailed recording of all financial transactions of your business. Accounting helps you track business income and expenditures. It provides management, government, and investors with quantitative financial information necessary for making intelligent decisions. Accounting also ensures statutory compliance.
Why is accounting important in business?
Accounting plays a critical role in business. Most importantly, accounting helps you track revenues and expenses. In addition, it ensures statutory compliance, providing management, government, investors, and other stakeholders quantitative financial information. The information accounting provides helps you make business decisions.
Why is accounting important for small business owners?
If accounting isn’t your specialty, as a small business owner, hiring the services of an accountant is the smart thing to do.
One important prerequisite of growing a small business is regularly compiling and reviewing financial statements. In addition, proper accounting practices help you discover potential operational inefficiencies within your small business.
You can save money on many things as a small business owner, but accounting shouldn’t be one of them. Accounting is a specialty, and it requires the attention of a trained professional. Skilled accountants can help business owners make better decisions based on financial data. In addition, working with an accountant can ensure that your small business meets all compliance requirements.
Accounting is important if you want to attract investors
Investors hate to lose money, and they won’t invest in your business without understanding the financials. Before investing in your business, investors want to know if your business is profitable. If you apply for a loan, you can rest assured that banks want to be sure that you pay them back with interest.
Your accountant can turn the financial data on the ledger into a balance sheet and a cash flow statement, which enables investors and lenders to sum up your finances at a glance. If your company is a good investment, up-to-date accounting statements will do more to convince investors than any amount of talking.
Accounting is important for managing your business
Accounting gives you information about the company’s performance. For example, you may feel your business is doing well when sales are up, but accounting may tell another story. If you are spending too much money on marketing, the growing revenue won’t increase profits.
If you buy advertising on credit, you may not have enough cash to pay for other business expenses. Accounting provides critical details about your finances to help you understand the real numbers behind your business. The information accounting provides will help you decide when to cut your spending or increase spending.
Accounting is vital for government compliance
You cannot ignore taxes in business. You are required to pay Social Security on employee paychecks, sales tax, tax on your business’s income, and possibly various other tax bills. The state tax board or the Internal Revenue Service can hit you with fines and penalties if you get the amounts wrong.
A good accountant will help you meet your tax obligations. For example, if you have to provide financial information to government regulators, your accountant provides you with that data.
The three most important financial statements in business are:
- Income statement
- Balance sheet
- Cash flow statement
What is the purpose of an income statement?
The purpose of the income statement is to show the net income or loss over a particular period of time. This result-oriented report provides you with information about the profit and loss in your business. With the income statement, you get an understanding of how much money was gained or lost in your company.
There are three key sections in the income statement:
- Cost of Sales
- Operating Expenses
What is the purpose of the balance sheet?
The purpose of the balance sheet is to give you a snapshot of your assets and liabilities. With the balance sheet, you get a clear picture of the net worth of your business over a period of time.
There are three important sections in a balance sheet:
- Assets – current assets, fixed assets, intangible assets
- Liabilities – short-term liabilities, long-term liabilities
- Owner’s equity
What is the purpose of the cash flow statement?
The purpose of the cash flow statement is to show the major cash flows occurring during the same period as the company’s income statement. Essentially, it’s a bridge between the income statement and the balance sheet. The cash flow statement reports the cash generated and spent during a specific period of time.
It is critical to keep your financial records clean and up to date to keep your business afloat. Here are just a few reasons why it is important for your business, big or small!
Accounting and its role in business performance
The role of accounting in measuring business performance is to provide financial information to the business owner. Accounting gives insight into the financial position of your corporation or small business. That is, accounting helps you make sense of what’s going on with your business financially.
Clean and up-to-date records help you keep track of debt, expenses, and gross margin, but it will help you compare current business performance previous performance.
Accounting ensures statutory compliance
Accounting has a critical role in complying with statutory requirements. Each year, new laws and regulations further challenge companies. Having proper accounting systems and processes in place will help you meet statutory compliance requirements.
Accounting is critical to making budget and future projections
Accounting is critical for budgeting and future projections. This is so important that it can make or break a business. Without your financial records, you cannot make budget and future projections.
Financial projections are based on historical financial data. It is the only way to keep your business profitable.
When most entrepreneurs think of getting a degree, they usually think about finance or getting an MBA. While both these options have their advantages, few consider pursuing a degree in accounting. But, having a qualification as an accountant offers many advantages that shouldn’t be overlooked. In this article, we’re going to give you a few reasons every business owner should consider getting an accounting degree.
Why is accounting called the language of business?
During a CNBC interview, Warren Buffet once described accounting as the language of business. He also said that understanding accounting is critical for evaluating businesses.
Accounting is essential for a business internally because it helps business owners and other stakeholders to make intelligent decisions. The language of business is also critical externally because it helps investors, bankers, potential buyers, and business partners evaluate the business.
Much like a foreign language, you must learn accounting to use it in your business. But, more depth can be found in this comparison than initially meets the eye.
Humans express thoughts through written and spoken language; similarly, accounting statements show information about a company.
We use words and sentences to express a chain of thoughts in language. In accounting, financial transactions are recorded in accounting software. Once the accounting data is processed, the financial information is presented to the business owner. Finally, the financial information is presented through financial statements. Accounting delivers all financial information on a company’s historical activity, current events, and future prospects.
Just as language articulates the mind by clearly organizing words, accounting does the same by accurately recording all financial transactions in the book of accounts, telling all stakeholders about the financial outcomes and financial status of a business.
Different signals, synonyms, lines, and symbols can be used in the accounting field, just as different signals, synonyms, lines, and symbols can be used in language—liabilities, assets, debit, credit, and more. So, considering that accounting is used for communicating financial events to company stakeholders, we can declare that accounting is the language of business.
What is the difference between Commerce and accounting?
There is a vast difference between Commerce and accounting. Commerce is the collection of all economic activities, and accounting refers to the evaluation of financial data. In simple words, we can say that Commerce is a house, and accounting is everything inside the house.
As a subject, Commerce involves the study of trade, business, bookkeeping, accountancy, laws, etc. In comparison, Accounting involves recording all the business transactions in a specified format under pre-defined rules.
Commerce is a subject that includes all the parameters which affect the economy. At the same time, accounting is just a part of Commerce that is concerned with bookkeeping and generating financial summaries. Accounting is like recoding the changes which can be measured in monetary terms.
Accountants Possess the Perfect Set of Skills
In this day and age, simply having a good idea is not enough to sustain and grow a profitable business. Many of the tools entrepreneurs need to sustain a viable business are part of the training accountants receive, and this is one of the many reasons accountants make great entrepreneurs. Communication skills, problem-solving, time management, teamwork are all aspects that are covered in an accountancy program. Furthermore, accountants are capable of adapting themselves to new trends such as risk & compliance management and the introduction of new IT systems.
Accountants are Essential for any Business
No matter how you cut it, every business has an element of accounting embedded in it. Uninformed entrepreneurs can easily get caught up in the idea of business and might be tempted to take dangerous financial risks in the process. Someone with a good accounting background will be able to identify discrepancies and will refrain from making wrong financial decisions. They are also more familiar with tax laws and responsibilities, as well as deductions and benefits. So, the accountant will have more feathers in his cap when it comes to reducing expenses and taking advantage of the tax system.
Accountants have a Better Understanding of Business Mechanics
Because they have to be aware of every aspect of the businesses, accountants are privy to certain information the average entrepreneur or even manager doesn’t. With this insight, they are able to make better business decisions. They understand when it’s time to take calculated risks, take a more prudent approach, and they know how to increase business returns. This kind of knowledge could make a whole world of difference between a soaring business or one that fails miserably.
Accountants get Respect in the Business World
There are very few positions in the business world that are as respected and valuable as accounting. If you were thinking about raising capital or meeting with investors, having a background in accounting will automatically raise your profile and will instantly increase their trust in your abilities. They will automatically assume that you’ll be able to make more sound decisions and will be more inclined to trust you with the finances than a self-made entrepreneur. Furthermore, a venture capital firm is more likely to allow you to retain control if you have a background in accounting.
Every entrepreneur should consider getting a qualification in accounting. If you’re currently running a business and don’t have the luxury of going back to school and pursuing a degree, you can always get an online masters of accounting. Getting your masters degree in accounting online will give you the same skill set you would get at any Ivy League school while still being able to oversee your operations.
Accountants have a much more in-depth knowledge of the inner workings of a business and are able to make better decisions, so have one less person on your payroll to worry about.
Latest posts by George Meszaros (see all)
- 6 Surprisingly Simple Ways to Boost the Efficiency of Your Business - November 7, 2022
- How Do You Build An Authority Website To Outcompete Your Rivals – Interview with Gael Breton - November 6, 2022
- How to Start a Business That Sells to The NFL, NBA, and MLB - November 5, 2022