Introduction to Business Accounting
Accounting is an essential part of the success of your business. For reasons understandable to most, the thought of business accounting proves to be petrifying rather than comforting, because people do not usually have the penchant for numerical computations, formulas, and data analysis. Yet, without a good business accounting model in place, a business could lose the foundation for its stability.
To address this fear, let’s walk through the basics of business accounting which you will surely find helpful one of these days.
What is business accounting?
In its simplest definition, business accounting refers to the process of maintaining detailed records or accounts of a business. It involves three main responsibilities: to identify, to record, and to communicate. When you do business accounting, you ought to identify the financial activities related to the business, such as investments that pour in and transactions that happen either inside or outside the organization. Upon identification, you will need to keep a record of these financial activities in the most systematic way so that you can later use the recorded data to communicate what has transpired in the company. Business accounting is important as it is where huge business decisions are built. Accountants analyze and interpret financial data in order for the management to evaluate the status of the business, what the business can still accept or let go, and what the business can do to maintain, if not improve, its financial profile.
Who uses the information?
Information derived from business accounting processes is used by internal and external users. When we say internal users, we mean those people mentioned earlier, such as supervisors, managers, and financial officers, who need such financial data in order to come up with vital decisions for the business. On the other hand, external users are people who use financial data in order to make decisions on investment and legal concerns. Some examples of external users are investors, creditors, and government agencies.
What are the most important concepts in business accounting?
Below are some of the most crucial concepts under business accounting that you need to understand:
Financial records refer to documents and books which show what a business owes and what it owns. Basically, these records are used to monitor the progress of the business. In financial records, it is necessary to understand key terms, such as “assets”, “liabilities”, and “stockholders’ equity”. Assets are what the business officially has. Liabilities and stockholders’ equity, however, are what the business owes. Liabilities are credit debts while stockholders’ equity is investor debts. If you use these terms together, you will get the basic equation in business accounting which translates as follows: Assets = Liabilities + Stockholders’ Equity.
Accounting Rules and Principles
In every country, there is an established set of rules that govern all accounting processes. For example, the Philippines follows the PFRS (Philippines Financial Reporting Standards), which is a local version of the International Financial Reporting Standards, for both domestic and foreign accounting-related activities for businesses. Moreover, all companies in the Philippines are required to submit reports of their tax returns and financial reports to the Securities and Exchange Commission for proper auditing.
Professional ethics also govern the world of business accounting, particularly because financial information generated by accountants could be manipulated to abuse or malign a person or a business in general. Hence, honesty and integrity are two of the most essential values that must be embraced by business accountants.
There is definitely more to business accounting than all these terminologies and definitions. The more important thing is you have realized how good business accounting is indispensable for your business. Perhaps by this time, the desire to escape accounting is no longer that intense.
If you’re still unsure of how to take your accounting processes from here, feel free to request a demo or consultation with our experts today.
SERVIO Enterprise, a subsidiary of SERVIO Technologies, offers customized accounting software for large businesses in the Philippines.