Accounting made easier
Keeping accurate accounting records of your business activities is also a legal requirement.
Below is a gentle introduction to business accounting from a small business or start up perspective.
Certainly in the early years of a start-up business, it is vital to know where and how every penny is spent.
Some would argue that “knowing the books” is crucial in being an effective business person. Although many would also argue that they are too busy selling, being creative and earning the money without having to also count it.
Analysing and working the numbers requires a particular type of mind and if you were that way inclined then you would have become a Chartered Accountant and not a baker, plumber or software engineer.
The truth is, there is a mix of very successful business types out there. Some are obsessed with their business finances and others consider them as no more than a consequence of what they are good at.
In reality, bookkeepers record the numbers and accountants confirm those numbers, create reports and analyse the performance of the business.
Which means that somewhere either in your business or as an external service, your business requires at least accounting competence or ideally accounting talent to keep your business on track.
In fact, the law dictates a number of requirements that likely involve a qualified accountant.
This section provides an introduction to the different elements of accounting so that you understand what your accountant is saying to you.
Accounting for business basically falls into two sections.
Financial accounts
Financial accounts covers the reporting aspects of the business. These financial reports are for external presentation to interest parties such as investors, shareholders and Government.
Below is a list of the financial accounting reports:
- Income statement (Profit and Loss or P&L statement).
- Balance sheet
- Cashflow statement
Management accounting
Management accounting provides the internal tools to more efficiently manage the processes of the company. These techniques are instrumental in improving the resulting figures shown in the financial accounts.
Management accounting covers three broad management areas within the business
- Strategic
- Performance
- Risk
Below is a list of typical management accounting tools
- Budgeting
- Cost control (posh name is cost variance analysis).
- Credit control
- Break-even analysis
- Marginal costing
- Cost allocations
- Pricing
- Stock analysis
- Working capital analysis
- Forecasting
Bookkeeping
Bookkeeping is the on-going process of recording all transactions within the business.
- Ledgers and records
- Trial balance sheet