It is true that one does not have to earn a degree in accounting to be successful. However, having a basic knowledge of accounting will assist you in engaging an accounting professional who will guide you in the successful operation of your business or organization.
It is my intent, through this blog post, to pique your interest enough to take the first steps in engaging an accounting professional to determine what is needed to make informed financial decisions and establish a basic scope of accounting services to help meet these needs.
Following are a few basic definitions related to the practice of accounting.
Accounting is...
Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a company's assets, liabilities and equity.Accounting provides information on:
- The resources available to a company,
- The means employed to finance those resources, and
- The results achieved through their use.
Types of Accounting
Accrual Basis Accounting - Used for retail and most other businesses (except very small businesses)System of accounting based on 'accrual principal' under which revenue is recognized (recorded) when earned, and expenses are recognized when incurred. Totals of revenues and expenses are shown in the financial statements (prepared at the end of an accounting period), whether or not cash was received or paid out in that period. Accruals basis accounting conforms to the provisions of GAAP (see definition below) in preparing financial statements for external users, and is employed by all companies except the very small ones (which use cash basis accounting).
Cash Basis Accounting - Used for small businesses and nonprofits who primarily engage in cash transactions
Accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Cash basis accounting does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action (sale or purchase) and its result (payment or receipt of money). It is, however, simpler than the accrual basis accounting and quite suitable for very small businesses (including nonprofits) which transact business mainly in cash. NOTE: While it does not conform to GAAP, it is still acceptable for many given their operational goals.
Cost Accounting - Used for manufacturing businesses
A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance.
What is GAAP - Generally Accepted Accounting Principles?
Authoritative rules, practices, and conventions meant to provide both broad guidelines and detailed procedures for preparing financial statements and handling specific accounting situations. They provide objective standards for judging and comparing financial data and its presentation, and limit the directors' freedom in showing an unrealistic picture through creative accounting. An auditor must certify that the provisions of GAAP have been followed in reporting an organization's financial data in order it to be accepted by investors, lenders, donors and tax authorities.
How we can help
While you are very passionate about your product or service or your organization's charitable mission, you might not feel so warm and fuzzy about accounting. However, you know how important it is to be able to make sound financial decisions. If this concept intimidates you, we can help.We can make this process less "formal" and "sterile" by gaining a keen understanding of your goals, recognizing that while the "business" side is important, your "passion" for what you do is equally important. When we meet for an initial consultation, we'll focus on the following eight (8) objectives with regard to your financial information:
1. Identifying,
2. Recording,
3. Measuring,
4. Classifying,
5. Verifying,
6. Summarizing,
7. Interpreting, and
8. Communicating
We will assess how each of these objectives will be met, specifically with your business or organization in mind, and work with you to establish a process that makes sense to you and that is affordable to you.
Contact me for a free one (1) hour accounting consultation.
I certainly hope that you have found this blog entry useful as you go about the business of running your business.Please check in on my blog periodically for helpful business related tidbits and other insightful information. In the meantime, be well and prosper!
