Business / Overview Of Accounting
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Autor: anton 30 April 2011
Words: 912 | Pages: 4
In the business world it is fundamental for all business owners to understand the functions of accounting and finance as it relates to his business. For the small business owner accounting and finance is just as important to his day-to-day operations as it is to the CEO of a multi-million dollar corporation. Accounting and finance are the foundation to and the road map of the companyâ€™s future. Without accounting and finance the business owner does not know where the company has been financially and will find it difficult to plan accurately for the future.
The purpose of accounting is to document the operations of the company. Accounting reflects the companyâ€™s financial history thus; making accounting documents an essential tool in preparing for the companyâ€™s future. The purpose of finance is to provide a plan for the future. The small business owner should use his finance knowledge in combination with his accounting documents to assist him in accurately forecasting the companyâ€™s financial future. (McNamara)
In addition to accounting and finance knowledge, small business ownersâ€™ should be able to generate financial statements from his accounting documents and analyze those statements to fully understand the current and future financial state of the business. The four main financial statements are balance sheets, income statements, cash flow statements, and statements of shareholdersâ€™ equity. (na, Beginnersâ€™)
The balance sheet reflects the companyâ€™s assets and liabilities at a specific point in time. An income statement reflects how much money the company made as well as spent over a period of time. Cash flow statements show the exchange of assets between the company and other entities over a period of time. A statement of shareholdersâ€™ equity illustrates the changes in the interests of the companyâ€™s shareholders over a period of time. (na, Beginnersâ€™)
Managerial reports are equally as important as financial statements. Managerial reports provide for the companyâ€™s overall strategic decision-making ability. They will enable the small business owner to plan for the companyâ€™s future with confidence. Subsequently, the quality of managerial reports is critical. The managerial reports should outline the fiscal position of the company and refer to the companyâ€™s financial statements to support the companyâ€™s position. Well-organized financial and managerial reports should provide a clear picture of the companyâ€™s performance, making it easier for the small business owner as well as anyone who has a vested interest in the company, to interpret the financial results on his own. (McNamara)
Even more critical then the creation of, is the use of financial and managerial reports. It is imperative that the small business owner distributed these reports to others within the company who understand how to interpret them, have the authority to make operational decisions, and will review them promptly so as to implement any needed modifications in a timely manner. (McNamara)
Financial accounting is also used to make informed and ethical business decisions. For instance, should the accounting documents show the available capital for growth, the small business owner may decide that it is a good time to invest in company growth by allocating resources efficiently, maximizing the income potential of the business, and monitoring the results through the accounting documents. The successful management of the companyâ€™s financial resources is dependent on the integrity of the financial accounting, so it is important that the small business owner take time to ensure the accuracy of these documents. With the many recent, highly publicized illegal acts committed by top company executives, it is easier for the small business owner to distinguish illegal from legal accounting practices. (na, Business)
However when facing ethical decisions small business owners will still find a great deal of gray area even with all the laws today, so it is important that they ask themselves three questions, is it legal, balanced, and right. â€œIs it legal? In other words, will you be violating any criminal laws, civil laws or company policies by engaging in this activity? Is it balanced? Is it fair to all parties concerned both in the short-term as well as the long-term? Is this a win-win situation for those directly as well as indirectly involved? Is it right? Most of us know the difference between right and wrong, but when push comes to shove, how does this decision make you feel about yourself? Are you proud of yourself for making this decision? Would you like others to know you made the decision you did? Most of the time, when dealing with "gray decisions", just one of these questions is not enough, but by taking the time to reflect on all three, you will often times find that the answer becomes very clear.â€ (na, Business)
With some basic knowledge of accounting and finance, the small business owner can use the tools available to efficiently manage his companyâ€™s assets and liabilities thus, increasing the likelihood of successfully experiencing the growth needed to remain competitive in his industry. Additionally, by keeping accurate and organized financial records the small business owner is also more likely to experience an increase in profits while thriving and continuously growing.
McNamara, Cater. Basic Guide to Financial Management in Small For-Profit Businesses. (nd). Retrieved October 14, 2006, from http://www.managementhelp.org/finance/fp_fnce/fp_fnce.htm#anchor561142
(na) . Beginners' Guide to Financial Statements. (nd). Retrieved October 14, 2006, from http://www.sec.gov/investor/pubs/begfinstmtguide.htm
(na) . Business Ethics. (nd). Retrieved October 14, 2006, from http://www.sba.gov/managing/leadership/ethics.html
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