Recently in the pre-election campaigns, President Joe Biden came up with new changes in the taxation system.
Hence it’s the right time to focus on one of the crucial pillars of business which is accounting.
Before diving into it further let us break down the basics of accounting.
What is accounting in terms of business?
A robust approach and detailed recording of financial transactions in a business are referred to as accounting.
There are five major types of accounting:
- Small businesses
Why accounting is important in business?
It’s a process that involves bookkeeping every transaction, managing assets, liabilities, taxes, expenditures and finally reporting all together as financial statements.
Below are the importance of accounting in a business:
- It eases the process of going through audits
- It helps to track business performance over time
- It helps to analyze a business financial standings
- Through collective accounting data, it can help to plan effectively for future goals and financial budgets
- It helps to improve the productivity level of the workflow by speeding the decision-making process
- It helps in creating effective policies while looking at the stats and figures in financial statements
Outcomes of a quality accounting
Although the outcomes of a quality accounting system are broad, and many businesses are well-served this makes quality accounting fundamentally important for any business to not neglect it.
Quality accounting should provide outcomes like:
- Assets and liabilities are overlooked precisely
Many ups and downs take place in a business that rises in assets and liabilities, it consists of fixed assets, brand recognition, working capital, and Long term-debt, accounts payable and etc.
These assets and liabilities should be dealt with properly as these are the crucial factors in maximizing a business’s financial success.
Hence managing accounts receivable, accounts payable, and fixed assets altogether on a regular basis is obtained in a significant way through quality accounting.
- Transaction is recorded regularly and accurately
It’s too early to say that achieving accuracy and consistency over time is not very easy, doing so requires a process of two ways like the whole transaction inserted and then repeated in nature.
Businesses should leverage technology to increase their automation, where cost-effective.
Whereas on the other hand detective measures can be utilized like reviewing financial statements, bank reconciliations to identify accounting errors.
- Financial statements are reviewable in a comprehensive manner
Business who have quality accounting, they totally rely for future projections and budgeting on their financial statements automated by the system.
This shows the importance of these statements is not something to be overlooked.
A proper way of financial statements is that it should be intuitive and informative both in detail and in summary.
When looking at the financial statement from a manager’s perspective it should pass out a detailed level of information like when and with whom transactions have taken place.
Whereas for a CPA it should summarize details like cash flow, financial position, and overall profitability.
Thus the design of financial statements should be crafted with a diverse chart of accounts along with the ability to segment, aggregate transactions by nature and by activity driver.