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What Is Accounting Anyway?
Anyone who’s worked in an office at some point or one more has had to go to accounting. They’re the individuals who pay and send out the bills that keep the company running. They do a lot more than that, although. Sometimes referred to as “bean counters” they also keep their eye on profits, costs and losses. Unless you’re running your own business and acting as your own accountant, you’d have no way of knowing just how profitable – or not – your company is without some form of accounting.
No matter what company you’re in, even if all you do is balance a checkbook, that’s still accounting. It’s part of even a kid’s life. Saving an allowance, spending it all at once – these are accounting principles.
What are some other businesses where accounting is critical? Well, farmers require to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it’s a great year, a profitable one, then they can pay off their loan; if not, they might need to carry the loan over, and accrue much more interest charges.
Every company and every individual needs to have some kind of accounting program in their lives. Otherwise, the finances can get away from them, they don’t know what they’ve spent, or whether they are able to expect a profit or a reduction from their business. Staying on top of accounting, whether it is for any multi-billion dollar business or for a personal checking account is really a required activity on a daily basis if you’re smart. Not doing so can mean anything from a bounced check or posting a loss to a company’s shareholders. Both scenarios could be equally devastating.
Accounting is basically info, and this info is published periodically in business as a profit and loss statement, or an income statement.
Accounting has been defined as, by Professor of Accounting at the University of Michigan William A Paton as having 1 fundamental function: “facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data; and 2) communicating the results of this procedure to interested parties.”
As an example, a company’s accountants periodically measure the earnings and loss for a month, a quarter or perhaps a fiscal year and publish these outcomes in a statement of profit and reduction that’s called an income declaration. These statements include elements for example accounts receivable (what’s owed to the company) and accounts payable (what the company owes). It can also get pretty complicated with subjects like retained earnings and accelerated depreciation. This at the higher levels of accounting and within the organization.
Much of accounting though, is also concerned with basic bookkeeping. This is the procedure that records each and every transaction; every bill paid, every dime owed, every dollar and cent spent and accumulated.
But the owners of the organization, which could be individual owners or millions of shareholders are most concerned with the summaries of these transactions, contained within the monetary statement. The monetary statement summarizes a company’s assets. A value of an asset is what it cost when it was very first acquired. The financial statement also records what the sources of the assets were. Some assets are within the form of loans that need to be paid back. Profits are also an asset of the business.
In what’s known as double-entry bookkeeping, the liabilities are also summarized. Obviously, a company wants to show a greater amount of assets to offset the liabilities and display a earnings. The management of these two elements may be the essence of accounting.
There’s a program for doing this; not each and every organization or individual can devise their personal systems for accounting; the result would be chaos!
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Tags: Basic Accounting
Posted in Accounting · July 5th, 2010 · Comments (0)
Every entrepreneur has to face the challenge of handling the accounting for their entity. However, not every business needs the same thing when it comes to their bookkeeping. Depending on the industry, accounting can be very straight forward and as basic as entering in bank transactions where other industries rely on much more detail. In later posts we will go over the accounting requirements for specific industries and business needs, however, in this post we will stick to more general aspects of evaluating your business.
The first step in evaluating what you need is to get a better understanding of what goes into bookkeeping and what your expectations are. I have met too many people who make assumptions about bookkeeping and then make decisions that our based on misconceptions; do some research. The first thing I always tell people is you will pay for what you get. Accounting is like anything else there are a lot of people claiming they are professionals and few are really worth it. Business owners need to know what questions to ask when interviewing accountants.
The next step is understanding your business model and industry. As I have mentioned I will be going into detail about different industries and models in later posts. Your industry and model dictates many aspects of your business and your accounting is one of those aspects. Lets say you are a retail location and you need a POS, a time management system, and commission tracking. If you do not plan well you will end up with three completely different systems that do not integrate and will end up costing you money in the long run.
Understanding your expectations is very important as well. There are two sets of expectations; the amount of information you require and the investment you’re willing to dedicate to your bookkeeping. You can not expect to have CFO level work at entry level prices. The more detailed bookkeeping and accuracy you require the more qualified person will be necessary.
Where does all this leave you? An educated choice that is well thought out will give the best end result. Entrepreneurs are faced with two options; hiring an employee or a Business Bookkeeping Service provider. Even though outsourcing is becoming a more accepted alternative there is still quite a bit of hesitation when coming down to making that decision. Hiring an employee is always the first thought when considering this need. However, a quality employee that you can rely on can be very expensive.
Even though these options seem limiting if you’re creative you can find the right fit for you. I have seen entrepreneur manage a multi-person accounting department, outsource the entire department, outsource lower level tasks, or even outsource the management of the department. The ability to choose and mesh these different solutions gives you an avenue to meet your goals.
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Tags: bookkeeping
Posted in Accounting · June 12th, 2010 · Comments (0)