Accounting - Key Ingredient for Success
No matter what size your business
The objective of accounting and bookkeeping is universal. It applies equally to single owner businesses as well as the largest corporations. No matter what type of organization you have, profit or non-profit, the objectives are the same. No matter what your organization’s mission is, whether it’s selling hard goods or services or keeping track of church finances, the process is the same. It should also be looked at as a key ingredient to a successful business no matter what size it is.Although accounting can be a bit confusing to the uninitiated, we’ll try to keep the discussion brief and to the point. Our intention is certainly not to downplay its importance, and we strongly recommend that new or existing business owners adhere to good practices and obtain any additional financial training or education that is needed. Definition of Accounting "Keeping the Books" is the process of recording and classifying transactions effecting an organization’s assets, liabilities, income (revenue) and expenses or (costs). Once recorded and classified, the information is reported in the three main financial statements: • Profit or Loss Statement (aka Income Statement). Profit or loss is the amount that sales or revenues either exceed or fall short of costs and expenses. • Balance Sheet. This statement is prepared periodically, usually at the end of each month. It summarizes the financial position of an organization by presenting its assets and liabilities. The assets less the liabilities equal the equity in a business which represents the worth of a company. • Cash Flow Statement. Changes in the balance sheet and profit and loss statement directly effects the cash balance of an organization up or down. The statement of cash flows breaks down this change in cash into three categories; operating, investing and financing activities. “Cash is King” and “Cash is the Real Bottom Line” are two phrases to describe the importance of cash flow. The cash flow reflects a company’s liquidity or solvency. Management needs to know if cash flow will be adequate to pay employees and other up coming expenses. Lenders and other creditors rely on cash flow to assure they will be paid on time. Use of Accounting Information As said above, accounting/bookkeeping is a process of recording and categorizing transactions that result in the financial statements. There are two broad categories of users (stakeholders), internal and external. Generally speaking, organization management are the internal users of the information while everyone else is an external user. • Management. In addition to providing basic financial information for running the business, such as amounts payable and assets owned, the statements help management analyze the financial position and profitability of the organization. This information also helps management make appropriate business decisions. • Creditors and Investors. Financial information allows these interest groups to analyze an organization for the purpose of making informed lending or investment decisions. • Other Interested Parties. There are a number of other possible users of financial information such as suppliers, customers, government agencies. To summarize, good financial information is essential to running a fiscally sound organization no matter how small or large the entity.
Return from Accounting to Build Website Business
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