If you are a business owner, you don’t need reminding that the accounting end of the business is one of the most important – and one of the most tedious – responsibilities. It is vital to keep accurate records of your expenses, profits and losses and more. In this blog let’s take a moment to review the essentials of Business Accounting 101.
The three basic activities of business accounting are identifying, recording and communicating the whole of the economic activities that take place in your company. The person charged with the responsibility of tracking this information should possess some training and the more formal the better. In other words, it would be best if the individual had taken college courses in accounting because the depth of knowledge required to maintain accurate records and understand the ‘ins and outs’ of business finance demand a knowledge of bookkeeping and associated skills. Business accounting may also require the ability to read financial statements and provide analysis and interpretation of financial information.
Business accounting is valuable for both internal and external users – for different reasons. Internal users need up-to-date financial information to continue to run their business and keep it financially solvent and afloat. External users can be stakeholders such as the government, creditors or investors.
At its most basic, business accounting creates the documentation that describes what a business owns, or its assets, and what it owes, or its liabilities. The liabilities are then further divided into credit and investor debts leaving the equation that is common to all accountants and bookkeepers.
“Assets = Liabilities + Stockholders’ Equity”
Now, if you have been a long-time business owner you may be thinking this blog is too elementary. However, it is the experience of many consulting groups that small and medium sized business owners tend to push off or otherwise wait to keep track of their business finances – which will eventually land them in trouble with their creditors or the IRS.
Those who are responsible for overseeing the accounting of a firm’s finances should be knowledgeable about Generally Accepted Accounting Principles (GAAP). These are rules that help to ensure all companies report in the same manner.