Accounting – importance and basic meaning 

Posted by on Jan 11, 2016 in Accounting Management | Comments Off on Accounting – importance and basic meaning 

When we ask ourselves that question, the answer is quite simple, at the end everything resolves around money. Accounting manages all transaction within the company and records it. It monitors the profit or the loss and help the company to become more productive and profitable because it has all information required for the business. Good accounting team will only increase the productivity of the company and it will reduce the cost without jeopardizing its wellbeing.

There are two types of accounting: “cash basis” and “accrual”. Small companies usually use the first method and it is referred to a physical movement of the cash between two parties. For example: when one party buys some good on credit card in April and pays it in September, the accounting will record transaction in September, because the goods were paid in that period and that’s the time when the money left the company.

cash-basis-accounting

Accrual method use larger companies and when we compare it on example above, accounting will record the transaction in April even though the bill was paid in September. This method fallows all bills that come into the company and regardless whether they were paid or not, the intension still exists and they are recorded and monitored as “to pay” or “to be paid”.

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Try to imagine that you run a company but you don’t know its actual profit, you don’t know your loss or expenses, salaries of your employees, you don’t pay federal, state or city taxes and your inventory doesn’t exist. These types of things accounting regulate and helps company save money instead of losing it on unnecessary matters. Every loss is analyzed in details in order to maintain productivity of the company and every single matter is questioned to determine what brought that loss.

tax-filing

It is important that every single money that enters and goes from the company need to be monitored, recorded and accounted for. When accountants follow up this procedure they can predict future of the company, its growth and its performance. It takes lot of time and patience to understand how the cash flows and how to improve the productivity of the company. Accounting can help you pay your taxes, employees and client on time and it can determine if the money is wasted on a third party, when the business could be done within the company.

Accounting Cycle

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How do you track your business performance? Only through reports and tons of the reports. In order to run successful business, you accounting team must include cash flow reports, accounts payable, accounts received, budgets and expense reports. You can use any of these reports and there is no any specific rule that you must use any of them, it all depends on you and your choice how you will run your company.

There are few types of reports that can be beneficial for your company:

Cash flow (you can include here daily, weekly, monthly, quarterly and annually), budget and cash plans, accounts receivable/payable, income statements and balance sheet and stock holdings.