Accounting is a crucial part of a business. It is not a science but an art of analysing the financial position and operating results of a business. While, many people think accounting is not an important criterion for starting a small business, it cannot be further from the truth. Accounting goes beyond just adding and subtracting, as there are decisions to be made according to preferences of business operations. If businesses are to reach their full potential, basic accounting practices have to be followed as they play a major role in determining both success and failure of businesses.
Two types of accounting methods exist in business environments, namely ‘Cash Basis’ and ‘Accrual’. The ‘Cash Basis’ method recognizes and records financial transactions when cash changes hands between parties. ‘Accrual’ accounting recognizes and records financial transactions as they occur, regardless of when cash changes hands during transactions. Smaller businesses often use ‘Cash Basis’ accounting because it is an easier accounting method.
Relevance and Reliability are the two main reasons why accounting is so important for key decision makers of businesses. Once business owners realize how important accounting is, they will be more than eager to put in that extra effort. All they need to do is ensure that their financial records accurately reflect their businesses’ income and expenditure. There are three financial measures in accounting, namely the ‘Balance Sheet’, ‘Profit and Loss Statement’, and ‘Cash Flow Statement’. The ‘Balance Sheet’ portrays how much a business is worth. The ‘Profit and Loss Statement’ shows how a business is performing and ‘Cash Flow Statement’ provides an assessment of future cash needs of a business.
Accounting software will help business owners to maintain an accounting system and help them to easily access businesses’ performance. Now all business owners are aware of the importance of using an accounting software. With accounting software, it is easier to stay organized and for business owners’ to include all information without any wastage of time.