One may ask why does a business need an accounting? I came across this analogy: “Its like asking the farmer, why does he need rain!” Who performs the accounting? Naturally enough, we call that person an accountant.
Accounting is crucial in the management of any business, in that the steps of recording, summarising, reporting and analysing financial details results in an understanding of the well-being of the business, by reviewing its the past performance. That performance being understood, one may anticipate steps that might be taken forward to grow the business, and develop a plan to ensure the business can flourish. It may be said that accounting is the memory bank of any business. . The creation of computers and accounting software in house or in the cloud now makes accounting more powerful, and it’s ancillary by-products easier to perform, such as generating financial statements, projections and budgets. Such data reflect snapshots that businesses require to make meaningful financial decisions, now and in future, to measure and maintain the health of the business.
Accounting has basically two categories: first, financial reporting of facts and secondly, managerial tools to evaluate performance within the entity. Financial accounting is used to inform readers of past results, which data is available to investors, creditors, and the taxation authorities. By contrast, managerial accounting permits data for the managers to look inward, and identify potential weaknesses of strengths of the Company. This managerial information includes data such as salary, profit targets, cost of goods, etc. and is used by the various levels of management, to the monitor and improve the day-to-day operations of the business.
One needs add “Accountability”to the tools within the accounting library. Business managers are accountable to owners for the methods by which they run the business. There are various special “controls” created to mitigate opportunities for fraud or cheating. These include internal audits, financial auditing by CPA’s, forensic auditing where there is suspicion of fraud, and CRA tax audits.
In summary, accounting is not only a data-bank, it is the conscience of the financial world! If you diligently engage accounting data , with care and respect, accounting will give you the where-with-all to prosper. To “err”, to procrastinate, to delay: each of these have serious consequences!
Refer to our on-site extensive web-page topic on bookkeeping.