4 Sep
Accounting encompasses a wide variety of activities that are crucial to the successful operation of any business, big or small.
At its core, accounting is the measurement, processing, and communication of financial and non-financial information about economic entities. It involves the systematic recording of financial transactions pertinent to a business, and it also covers the creation, interpretation, and communication of financial reports for tax collection agencies, regulators, and decision-makers.
There are several types of accounting, each specializing in a specific area. They include but are not limited to financial accounting, managerial accounting, cost accounting, taxation, auditing, and accounting information systems. Even within these subcategories, accountants can specialize further.
Though related, financial and managerial accounting serve different purposes. In terms of what they do, financial accounting focuses on the external reporting of a company’s financial information, whereas managerial accounting concerns internal aspects. This includes the preparation of detailed reports and forecasts for managers within the organization. While financial accounting reports tend to be general-purpose and intended for external stakeholders, managerial accounting reports are often specific-purpose and intended for internal use.
The role of accounting in small businesses is particularly paramount. Unlike large corporations that have dedicated accounting departments, small businesses usually lack such resources. As a result, a business owner often has to wear multiple hats, including that of an accountant. This has led to the growing popularity of small business online asset management software.
Available in a variety of forms, such online tools are designed to simplify accounting procedures for small businesses. A small business online asset management system can assist with billing, inventory management, sales, and income tracking, among other tasks. For instance, it generates income statements, cash flow statements, and balance sheets at the click of a button. This not only saves time but also ensures accuracy.
In essence, accounting is a necessary tool for business. It helps keep track of income and expenditures, ensures statutory compliance, and provides investors, management, and government with quantitative financial information which can be used in making business decisions. This comprehensive financial performance information is crucial in attracting potential investors, obtaining loans, and in planning future business goals and strategies.
Without proper accounting, a business may lose money without even realizing it. The financial health of a business can quickly spiral downward if proper account balances aren’t kept on revenues, expenses, assets, and liabilities. This is why accounting, having become an integral part of modern business, has emerged as one of the most sought-after professions worldwide.