It is a requirement of every business to have a good accounting team at its core or at least on specialist who could understand the specific needs of a business.
Accurate and timely financial data is required by the managers to make wise decisions and accountants do this for managers. On one hand, the process of accounting collects the data and presents it in different reports, the accountants for small business interprets the reports and make some suggestions to use the details to solve the problems that come across in a business.
WHY ACCOUNTING IS IMPORTANT?
Accounting plays a crucial role to run a business as it helps to track income and expenditures, it assures statutory compliance and give investors proper management with financial information that can be used to make business decisions.
There are basically three financial statements that are generated by your records:
- The income statement gives you the information about profit and loss
- The balance sheet gives you a clear picture about financial position of business on a specific date.
- The cash flow statement acts as a bridge between income statement and balance sheet and gives description about the cash generated and spent during a certain time.
It is certainly very important to keep the financial records clean and up to date if you intend to keep your business rise.
Below are few reasons that why accounting is important for your business:
FOR GOVERNMENT REGULATIONS
The business must move in compliance with regulations mandated by Government and pay taxes on corporate income, sales and social security. The tax accountants ensure that the filings are accurate and are made on time. Any minor mistake made at the time of reporting income could result in fines and penalties.
FOR EVALUATION OF BUSINESS PERFORMANCE
The financial records of your business give idea about results of operations and the financial position of your small business or corporation. They also assist you to analyze the financial movements in your business. The clean and up to date records will assist you to keep track of expenses and possible debt. It will also help you to make comparison of your current data with last accounting records.
To achieve the objectives, the successful businesses create plans. These plans consist of sales planning, cash flow projections, projecting inventory levels and purchases of fixed assets. The historical data’s accounting analysis provides the basis to make forecasts and developing plans to meet the targets.
To run a successful and smooth business, budgets are essential. For cost controls and to form the basis for future budgets, accounting makes use of historical data.
By having this data, managers can prepare the overhead expense budgets and sales plan and may create cash flow projections. To ensure that the costs stay within the budget, they analyse regular accounting reports.
Objectives of Accounting
The accounting system must reflect the activity of your business for legal and practical reasons. The tax reporting needs that you give data that is accurate as per your knowledge. If the accounting is disorganised, this could be a red flag for tax auditor. For internal purposes, accuracy is very crucial, since better information assist you to make strategic decisions.
The accounting system in which some pieces of information are missing will not be accurate. You must have solid systems to get information about all the transactions from the staff, vendors and bank accounts. You must also possess some regular internal methods to double check expenditures and revenues entered.
If your accountant for small business pays less attention to track the negligible inaccuracies from last years at the expense of entering data from current year, you could lose useful information by neglecting such big picture. It is therefore, crucial to prioritize the tasks that keep the information relevant for you to accomplish your tax forms on time and understand the financial picture of the business.
Now after reading the whole article, you won’t wonder that why accounting is called “the language of the business”. It communicates the data that the managers, investors, owners require to analyse the financial performance of the company. By not having accurate and timely information about business, your business is actually moving towards disaster and accounting prevents your business from doing so.
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