The words “accounting” and “finance” have always been associated with each other, but they have become more than that in recent years. Accounting is usually used as a synonym for management or control, but it doesn’t have to be. Finance is the method of managing money that makes it available to invest in business ventures and other activities. While accounting provides an accurate way of tracking finances, it isn’t the only method of doing so. When used properly, it complements and guides finance, allowing it to operate efficiently.
Small Business Accounting Basics Small businesses face many of the same accounting problems as larger corporations. They must keep track of financial transactions such as cash flow, inventory, sales, and payroll. Because these types of finances make up a large part of the small business investment, a thorough understanding of small business accounting is vital. While accounting and finance are essential to small businesses’ success, they do have quite a difference when it comes to their emphasis. Small businesses can utilize the following types of accounting for businesses:
Expense Accounting Keeping track of the costs incurred throughout a particular period of time is essential to good business decisions. A well-organized inventory system is one of the most important elements of expense accounting. Expense accounting professionals will collect information regarding all types of expenses, including materials used in the production of products or services, office supplies, travel, utility bills, and various payments made by customers. Some common types of expense accounts include: General ledger, statement of earnings, and statement of operations.
Revenue Accounting Another important element of accounting is revenue measurement. This involves the determination of the total amount of revenue earned during a period of time. The most common types of revenue accounting are: Domestic revenue accounting, corporate/business credit, and federal income tax accounting. Some of these types of accounting require the use of both specific items and general factors such as: purchases, sales, gross profit, and net income.
Business Finance Accounting involves the financing of small businesses. Financing means that a bank pays an interest on a loan. In order to properly finance a small business, it is important that the entrepreneur understands how to properly manage their finances. One of the most common methods of accounting for businesses is the Single-entry bookkeeping system. Other popular methods of accounting include the Payroll system, the Bank reconciliation, and the Cash Flows statement.
Management accounting includes a variety of reports that are prepared by accountants for management purposes. The reports that fall under this category are: Financial summary, Managerial accounting report, Financial analysis, Organizational description, Market research report, and Strategic planning report. A major component of managerial accounting is: Financial reporting systems development.