ARCH592 BUSINESS MANAGEMENT APPLICATION FOR ARCHITECTURE 2 Ar. Francisco P. Epe, mba Accounting Basics Learn about accounting basics how developing an understanding of your business's accounting will allow you to grow better. You're smart, but starting a small business doesn't make you a finance expert. Accounting 101 is crucial because of the time and money it can save you in the future. It doesn't matter if you love crunching numbers or consider yourself the more creative type. Entrepreneurs have to be aware of the financial health of their businesses and good grasp of accounting basics. What is business accounting? Accounting is the process of systematically recording, analyzing, and interpreting your business’s financial information. Business owners use accounting to track their financial operations, meet legal obligations, and make stronger business decisions. Accounting is a necessary part of running a business. It’s a task you’ll either need to grasp or outsource — or both. Let’s ease into the topic with Accounting 101. Accounting 101 Accounting is something that most people have heard about at work, on TV, or online. But that doesn't mean you really get the basics of accounting. Like many careers, accounting is a mix of tactical and analytical tasks. And it's not just recording transactions or doing taxes. Accounting is thinking about what your financial records will mean to regulators, agencies, and tax collectors. If you're in charge of accounting, it's not just numbers and receipts. It's a process of gathering and reporting financial information. You'll use those reports to communicate the cash flows, financial position, and performance of your business. Understanding accounting often begins with learning basic terms and principles. These can help you learn the foundation of accounting. Then, it's about learning how you can apply these practices. But before we dig into those ideas, let's talk about what day-to-day work looks like for an accountant. What do accountants do every day? Accountants oversee the financial records for a business and make sure the data is correct. Then, they use this data to create budgets, financial documents, and reports. Examples of this might include a cash flow statement for operations or an income statement for an upcoming board meeting. They also attend meetings to offer advice or look into legal issues. Other common activities include: Collecting new financial data Reviewing or updating past records Collecting evidence for audits and other legal proceedings Computing taxes Checking on compliance with relevant laws Making sure tax payments are on time Forecasting and risk-assessment Accounting Skills Accountants can't just be good with numbers. There are many other technical and soft skills that this role uses on a daily basis to make sure a business is financially healthy. Important skills include: Listening Time management Organization Critical thinking These help accountants gather information from stakeholders and communicate their findings. Knowledge of how the business works is also essential to contextualize financial data. While math skills are helpful, data and systems analysis are keys to success in this role. An accountant often plays the role of investigator. This means that curiosity and deductive reasoning skills are also useful. If you don't feel like these skills are your strongest areas and you run a business, you may want to seek out help to manage your accounting. Accounting vs. Bookkeeping These two might sound the same if you're new to business finance, but they're very different. To keep it simple, bookkeeping is a tactical role, while accounting is more strategic. Bookkeepers record and organize financial data for a business. Accountants analyze and advise business leaders about what to do with that data. They offer insights on taxes, legal concerns, and growth. They prepare reports and audits to communicate and present financial data. These insights help businesses prepare for unexpected shifts that happen as a business grows. So, an accountant can be a bookkeeper, but not all bookkeepers are accountants. Basic Accounting For Your Business: What You Need to Know Many small business owners do a combination of bookkeeping and accounting. If you run a business on your own, you may do some or all of the following tasks: Opening a bank account Tracking income, expenses, assets, liabilities, and equity Preparing financial statements Developing a system for bookkeeping Creating a payroll system Figuring out tax regulations and payments Sometimes a business will do this research and work as part of an initial business plan. Other times they learn about these requirements a little bit at a time as the business grows. Accounting Automation According to Statista, 64% of small businesses use accounting software for their finances. Another 43% use software for their taxes. Automated accounting software includes tools like QuickBooks, Xero, and other popular accounting applications. These tools are how most small businesses manage their accounting. Automation tools save businesses and accountants time by limiting the amount of time they spend on data entry. This gives them more time to analyze data to improve the business. Most accounting software is so quick and simple to use that it can be tempting to skip learning accounting terms and principles. But this know-how makes it easier to understand a complex audit or to find errors in automated data. Accounting Basics Regardless of how you manage your business accounting, it's wise to understand accounting basics. If you can read and prepare these basic documents, you'll understand your business’s performance and financial health — as a result, you'll have greater control of your company and financial decisions. Here are the documents and calculations we recommend picking up, even if you work with a professional, consulting agency, or have hired a certified public accountant (CPA). They provide valuable snapshots and measures of your business performance. 1. Income Statement An income statement shows your company’s profitability and tells you how much money your business has made or lost 2. Balance Sheet A balance sheet is a snapshot of your business's financial standing at a single point in time. A balance sheet will also show you your business’s retained earnings, which is the amount of profit that you’ve reinvested in your business (rather than being distributed to shareholders).
