Accounting is the backbone of all the businesses. Do you agree? Don’t ponder too much because accounting is one such important element of a business due to which business run smoothly by keeping their financial records. Whether you start a new business or already running an existing business, anyhow you need accountant to manage your financial records. Let me tell you that an accountant is not just a person, who manages your financial data; rather they are an integral part of your business’ financial future.
Well, some small businesses can’t afford to hire an accountant, if you’re one of them, then this article is for you. Here I will talk everything about accounting. So keep your eyeballs here only and read the article till the end.
First let me start with the definition of accounting.
What is accounting?
Putting in very simple words, accounting is a simple process of recording, analyzing, and interpreting your business’ financial information and data systematically. As a business owner, you can track your financial operation, meet legal obligations, and make powerful business decisions. Undoubtedly, accounting is a necessary part of running any kind of business. It is one such crucial task on which you have to master anyhow else you need to outsource your business otherwise, both.
Let’s move further and…
Understand different types of accounting
There are different types of accounting present but I will only talk about important ones.
# Financial accounting
The first type of accounting in the list you have is financial accounting. Basically, it keeps track of all the financial transactions of a business. The recorded and summarized transactions are presented in a financial statement like income statement or a balance sheet. This method actually records and conveys the current financial state to outside source.
# Cost accounting
This accounting is used to document, present, and review manufacturing costs. It records company’s expenditure, profit, loss, and determine per unit cost of a product. Manufacturing industry and an industry having lots of resources and costs to manage can use cost accounting method. Moreover, cost accountants also work with managers to decide on future decisions on the basis of financial prediction and the progress of production.
# Managerial accounting
As the term suggests, managerial accounting monitors and assists you in the financial planning of your business. Another name of it is management accounting. The emphasis here is on providing data that managers need to make decisions about business operations and achieve all the goals of the organization. Additionally, a managerial accountant must be careful and smart enough to not to reveal the confidential information to others.
# Tax accounting
Tax accounting involves in planning out the annual tax you pay each year. Whereas tax accountants assist you in planning for future tax return, like avoiding certain tax burdens and grasping the implications of specific tax decisions. Tax accounts are obviously hired by large organizations to navigate the complications of financial records.
There are two types of auditing i.e. internal and external auditing. External auditing is the process where a company provides financial statements to a third-party for getting financial feedback. Whereas internal auditing involves in determining the effectiveness of internal accounting process. So an internal auditor can easily review employee department policies, management policies, and much more.
Let’s now move further and have a look at…
A list of some important business accounting terms
Asset is any valuable thing or a part of an organization. It could be both tangible and intangible. An asset includes cash, property, copyright, patent, trademarks, equipment, real state, and inventory.
Equity is a certain amount invested in a business by its owner. It is also known as a difference between your business’ asset, and liabilities. If the liability of a company surpasses its asset then equity is negative.
Liability is a debt that your company owns in the long and short term. It include a credit card balance, taxes, payroll, and a loan.
Stands for Generally Accepted Accounting Principles. It refers to the broadly accepted guidelines for accounting and financial reporting.
In any business, capital is described as money which marketers invest on growing their business. It is also known as ‘working capital’ that doesn’t include asset and liabilities.
# Balance sheet
The financial record or statement of the company is known as balance sheet. It actually records and determines the financial health of a company. In fact, balance sheet should have same number on each side.
Business accounting is an incredible part of your company. Without mastering over it, you may not get success in your business. In this article, you learned about accounting, types of it, and some important business accounting terms.
Well, accounting helps you see the entire picture of your organization and help you make important financial decisions. Get in touch with us for any kind of accounting services.