Small Business Accounting Basics

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Accounting is a way of measurement, information processing and communication of information about financial and non-financial assets of both individuals and organizations. It is used to represent the value of an asset using a particular method and to determine the cost of acquiring or producing the same. Accounting is one of the major systems used in all industries to manage the financial aspects of their business activities. Accounting provides managers with information needed to make business decisions. Thus, it helps them achieve their goal of organizational performance improvement.

In simple terms, accounting uses financial statements, journals, and computer systems to record, summarize and communicate information related to the financial activities of a company or organization. It helps managers, investors, tax authorities, auditors, and other parties involved in the business to assess the performance and value of a company. Accounting records include invoices, disbursements, sales, purchases, income, and payments, and other financial transactions.

The basic accounting principles are primarily focused on maintaining adequate control over the activities of a company or organization. Accounting provides management with the information needed to make accurate and reliable financial statements. The process of accounting involves collecting and recording data that affect the financial report of a company and then communicating this information to owners, stakeholders, and other interested parties. The three basic accounting subjects are accounting records, the internal control procedures, and the control measures.

Accounting records are those records that facilitate the tracking and evaluation of the financial transactions of an enterprise. It includes both financial statement reports and vouchers. The important sections of accounting records are the income statement, balance sheet, and statement of cash flows. Every transaction in an enterprise is associated with a monetary value called a cost, revenue, or asset.

Within the scope of accounting, there are two main methods used to record financial transactions: cost accounting and managerial accounting. Cost accounting is performed on a current basis and is generally used to record the inventory, costs of goods sold, and charges for the production of items and services. Managerial accounting, on the other hand, is generally conducted on a past-due basis and is used to record the results of operations for an accounting purpose. Examples of elements recorded in the managerial account are customer charges, salaries paid, costs of production and sales, property and equipment sold, and net worth attributable to a business.

The accounting practices employed by small businesses depend greatly on the nature of their operations. Some small businesses conduct regular operations daily, while others operate periodically. Some companies have long-term relationships with customers and require monthly or quarterly reports. Some companies sell products directly to customers and do not engage in retail sales. Each of these different types of operations has its own unique set of accounting transactions and procedures.

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