Accounting involves numbers, spreadsheets, reports, and statements. But it is more than these. It has been frequently described as “the lifeblood of a business” and “the language of business” because many of a business’s decisions are based on its finances. Thus, the financial conditions of a company determine, in large part, its degree of success or failure.
What is Business Accounting?
Business accounting refers to how a business records, organizes, analyzes, and utilizes its financial information. The accounting data tell a story about the company’s financial state including its cash flow, its current value, its liabilities, and whether the company is making a profit. Is the company healthy and strong, or is it in trouble? Without the insights provided by accounting, a company would operate blindly.
There are several aspects or types of accounting, each with different purposes. Financial accounting helps make decisions about the health of a business. Management accounting is necessary for business leaders to make operating decisions. Tax accounting deals with the IRS. Forensic accounting is used for auditing and the analysis of legal practices. Cost accounting is used to examine the cost of doing business.
Some of the tasks of accounting include recording transactions, documenting and filing receipts, paying vendors and signing checks, balancing the business’s checkbooks, processing payroll, and making tax payments.
Why Accounting Matters for Every Business
Good accounting provides these benefits:
• It provides business performance data and financial projections.
• It helps a company plan for growth.
• It provides critical financial statements that enable a company to apply for a business loan.
• It is required to attract investors or to sell a business.
• It helps a company get paid by managing its accounts receivable.
• It helps a company manage its debts.
• It helps a company pay the right amount of taxes and keep out of trouble with the IRS.
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