Opening and running a business can be a surprising, exciting, complicated and yet an expensive endeavor. It seems pretty much simple; you just need to ensure you are selling goods and services for more than you bought them, right? Wrong. Without accurate record keeping your prospering business might take a sharp and immediate dive towards bankruptcy.
Financial accounting is arguably one of the essential tools for the success of any business, whether big or small. It plays a critical role in all financial decisions you will make. From procuring vehicles, supplies, and equipment, to selecting inventory quantity, determining salary amounts and increasing production, accounting is a vital component of any successful business venture. But if you do not have an extensive background in financial accounting, where should you start?
Selecting an Accounting Method
The first decision you need to make is to determine the accounting method you want to use. Different accounting methods usually decide when and how you record your business’s expenses, with the two primary accounting methods being accrual accounting and cash accounting. Cash accounting is ideal for small businesses because it requires that the bookkeeper records transactions when they have received or made payments. Accrual accounting, on the other hand, is usually the choice for huge corporations. With this method, the accountant logs every transaction as it takes place, whether or not you have received or made payments.
What Are the Benefits of Financial Accounting?
As mentioned earlier, accounting is instrumental to the success of any business, and as such there are numerous benefits associated with it. So, what are the benefits of financial accounting?
1.Helps in Wise Decision Making
A majority of business decisions including anything from pricing to expanding the goods you manufacture much rely on a business’s accounting procedures. It’s easy for a company to focus on the cost of goods and the sale of products to calculate profit; however, this could result in a financial disaster when all the liabilities of your business are factored in. Accounting helps keep track of money owed, loans, equipment depreciation, salaries and many other items that might not be included in the list of expenses. Additionally, accounting helps analyze business trends to aid in making policy adjustments for better cash flow and profits. Make sure to check the top Vancouver accounting firm for an accurate accounting and corporate tax preparation services.
2.Source of Information
Another significant benefit of accounting is the information it reveals about your business. This financial information is not only useful to the managerial team who use data about assets, revenue, equity, and expenses to make decisions but also investors who examine all results of financial accounting to determine whether to invest in your business or not. Bankers also use your financial records to calculate the risks involved in lending you a loan and from the same information, they can either deny or approve your application for a loan. Besides, financial accounting allows business leaders to change their budget and business plans for the future to take advantage of commercial strengths revealed by accounting or address any arising financial problems.
Federal and state regulations require a business always to perform financial accounting, which implies that the process has an added advantage of keeping your business in compliance with regulatory agencies and free from any fines or legal action. Accounting information is also an element of business ethics and transparency, requiring accurate and honest information for market analysts, competitors and investors to review.
4.Helps Detect Waste, Fraud or Carelessness
Besides keeping track of financial records, financial accounting involves the comparison of your company’s checkbook with bank statements, and hence one can easily pinpoint discrepancies and anomalies. With proper accounting and bookkeeping, you can identify any differences and detect errors that could be avoided in future.
So, whether you’re a startup business or a large corporation, remember to keep a record of every transaction as it occurs, ensure every entry is accurate and let the accounting-based information guide every financial decision you make.
For more information contact:
Superb Accounting Vancouver
6823 Station Hill Drive #307A, Burnaby, BC V3N 0A9