A good understanding of business accounting is essential to running a successful company. Even with the best products and services and millions of dollars in sales, your company will fail without the knowledge and use of proper business accounting practices.
Business accounting is creating and maintaining an accurate record of a company’s income and expenses to interpret its financial position. This process can be handled by hiring accountants, online bookkeeping services, or cloud business accounting software.
17 Aspects Of Business Accounting
Accounting Vocabulary
To understand and use proper accounting practices and processes in your business, you must be familiar with the basic accounting terms and vocabulary. The following are some of the most common business accounting terms:
Net Income
Sometimes called the bottom line, net income is the amount of money a company has; after all, operating expenses are subtracted from the income it generates.
Income Statement
Also called a profit and loss statement, an income statement is a summary of all the revenue, operating expenses, profits, and losses of a business during a specified period of time.
Journals
Also referred to as the company’s accounts, journals are where businesses record all of their transactions as they occur. The data is then transferred to official accounting documents, such as the general ledger.
General Ledger
This is an official accounting document in which every business transaction recorded in the company’s journals is organized to chart its accounts and provide a quick, clear view of the history of a company’s accounts.
Fiscal Year
This is a period used by companies to prepare financial statements, close their books, and provide all financial documents required for state and federal tax submittals. The fiscal year and the calendar year are not always aligned.
Current Assets
This is a list of cash, inventory, accounts receivable, and other resources a company will likely use within a year.
Non-Current Assets
These are assets like computers, equipment, real estate, and vehicles that add value to a company over one or more years.
Depreciation
Depreciation is the gradual loss of value of company assets over their lifetime, some of which can be deducted annually on the company’s tax returns.
Trial Balance
Trial Balance is an activity in which a company uses a worksheet to list its credits and debits to ensure any current balances are accurate. This enables the company to confirm the final figures are correct before they produce their financial statements.
Forecasting
Forecasting is a process through which companies use their historical financial data to predict future business trends. Businesses often use forecasting when they are trying to calculate their sales, expenses, supply, demand, and other resources for an upcoming period.
By having a good understanding of these common accounting terms, business owners will be better able to navigate the accounting world’s intricacies.
Proper Accounting’s Role and Importance
Whether you hire an accountant, use an online bookkeeping service, or ZarMoney or some other cloud business accounting software, understanding proper accounting’s role, and importance are crucial.
Proper accounting can help you make the best financial decisions for your company. Using good accounting practices and procedures can reveal the financial course of action best suited to your company and help show the steps you need to take for it to flourish.
Using an online bookkeeping service, hiring an accountant, or cloud business accounting software can make the process easier.
Bookkeeping and Accounting
Bookkeeping and accounting have the same general purpose, but they are not the same.
Accounting involves interpreting financial data to provide insight and advice about a company’s current and future financial activities.
Bookkeeping primarily involves recording a business’ financial transactions accurately, extracting financial information for financial reporting and taxes, and analyzing the financial data of a company to determine spending and cost-cutting options and priorities.
It’s the first step in a company’s business organization and its financial planning.
Proper Accounting Helps Maintain Accurate Records
Whether you use an online bookkeeping service, ZarMoney, or another cloud business accounting software or hire an accountant, making sure your business maintains accurate financial records are vitally important.
Proper accounting practices and procedures ensure all revenues and expenses are entered into the company’s financial records and you are prepared if your business is audited.
It helps you create accurate income and expenditure summaries and be aware of your business’s financial state. Plus, accurate accounting can help you better communicate the right course for your company.
General Ledger’s Role In Accounting
The general ledger is a key accounting tool and a business’s financial records epicenter. All revenues, expenses, and any other of your company’s financial transactions are recorded.
Accountants use the business ledger as the permanent record of a company’s financial progress. The data needed to create profit and loss statements, financial reports, balance sheets, and other financial documents come from the general ledger the accountant maintains.
This data must be accurately documented whether you use an accountant, business accounting software, or online bookkeeping service.
Financial Report
Accountants and accounting systems analyze the information from bookkeeping, ledger entries, and all other financial records to create financial reports.
Accountants use financial reports to show where a business is making or losing money, the state of its capital investments, and where cash flow needs to be improved. A financial report provides an in-depth analysis of a company’s complex financial data in a way that
clearly shows where the company stands financially. This is essential to make well-informed, accurate financial decisions that are best for the company.
Business Accounting Software
Many companies find it convenient and cost-effective to do business accounting using business software. Good business accounting software is fast, easy to use, accurate, and can provide the financial reports companies need in a timely manner.
