Posts Tagged accounting records
Understanding Debits and Credits – part 2
Posted by admin in Investment Opportunities, market demand, ownership, paperwork, profit margin, short-term income on August 3rd, 2009
Company financial operations also generate two other accounting statements:
Income statement—a summary of business revenue and expenses for a specific period of time.
Statement of owners’ equity—a record of the value or percentage of ownership held by individuals or firms with a stake in the business.
The primary purpose of all such statements is to help keep the company finances in balance. To that end, all debits must equal credits and all credits must equal debits when reflected on the balance sheet and income statement. If they don’t, the balance sheet won’t balance.
Your accountants may also generate another statement, for cash flow. We’ll discuss cash flow later; for now, all you need to know is that while the income statement and the statement of owners’ equity show the state of finances, the cash flow statement tells how the company reached that state. In essence, it accounts for how cash came in and how it went out.
Understanding Debits and Credits – part 1
Posted by admin in Business plans, Companies, communication, consulting, understanding finances on August 3rd, 2009
You’ll find in subsequent chapters that the accounting function has many steps and components. Although they may vary in complexity, all bookkeeping and accounting systems are essentially the same.
The concept behind accounting, what makes it more than merely adding and subtracting, revolves around a basic core consisting of debits and credits. This is an accounting system’s soul, and understanding it will help managers better handle their share of responsibility for the firm’s finances.
In some ways, debits and credits are more complex in theory than in practice. Debits and credits form the basis of all accounting functions, including the company’s balance sheet. They are the two types of activity that can affect any financial account of any type— assets, liabilities, equity, income, or expenses.
The balance sheet is one of the primary accounting statements for any company. It’s a list of assets, liabilities, and owners’ equity—ownership value, if you will—in the business as of a specific date, usually the end of the financial month or fiscal year. Its ultimate goal is to keep all accounts in balance.
Managers’ Great Expectations and Accounting
Posted by admin in Companies, consulting, financial information, revenue, variable costs on August 3rd, 2009
The essence of managerial expectations is found in what’s called basic accounting ARTS—meaning that in reporting financial data, the accounting function should be Accurate, Relevant, Timely, and Simple.
Given the important role of accounting, it only stands to reason that managers have certain expectations of the accounting function, including the following basic principles:
The accounting system must accurately reflect the company’s current financial condition. And it must do so in a timely fashion.
The system must be clear, logical, and easy to use. Information should be understandable to all company officers and executive staff without the need for complex interpretation by the accountant.
The system must provide useful information that officers and staff can use in making decisions and achieving the company’s goals.
But even if the company’s accountants are the best in the world, it won’t matter much if the nonfinancial managers around them basically take the information in their reports and file it away—either horizontally or vertically—because they don’t have much idea how the numbers were generated or what they mean.
What’s So Important About Accounting? – part 2
Posted by admin in communication, incentive, management skills, paperwork, performance objectives, production cycles on August 2nd, 2009
In the dark recesses of their numerical souls, even some accountants may worry that their function is only a necessary evil, an overhead expense that in some organizations is no more than a glorified bookkeeping function. Not so. Sales, manufacturing, research and development, and management all generate raw financial data through their various activities. It’s up to accountants to turn that data into useful information.
A good accounting function—whether in a large company headed by a highly trained chief financial officer (CFO) or a small company with a bookkeeper—produces and communicates information. This information shows department heads how they’re spending the company’s money and whether they’re getting the results they want. Sure, accountants are still number-crunchers and bean-counters, but the true value of what they do is in how they interpret and present the results of all that crunching and counting.
Plain and simple, a company’s accountants, whoever they may be, are guides to its finances. The way this group or this individual organizes figures and turns it into meaningful information provides the measures that help determine the success or failure of the company. Understanding those measures may make all the difference between the manager who’s a well-rounded professional and the manager who’s just another specialist with little sense of the larger financial implications of his or her decisions.
What’s So Important About Accounting? – part 1
Posted by admin in Global Markets, effective budgeting, incentive, material costs, paperwork on August 2nd, 2009
For accountants, the i proof is in the y paperwork. Accurate, well-organized records are a must. Sloppy bookkeeping is the road to financial failure—or at least to slowing down success, perhaps a lot. As a first step in becoming “accounting literate,” take the time to write down all business activities, and make sure your records are accurate.
Good salespeople know all about the items they’re selling. Really good salespeople know the engineering calibrations, size, velocity coefficients, or other technical data about their product.
Why do salespeople need to know these things? Here are some reasons:
Extensive product knowledge impresses the customer.
Product knowledge gives customers faith in the salesperson’s claims that the product is exactly what they’re looking for.
It gives the salesperson better insight into the product and its uses, which makes him or her better able to help customers believe this product is the solution to their problems.
It makes the salesperson more successful. That means higher income, greater job security, and better opportunities for promotion, besides the obvious benefits for the company.
The same argument holds true when it comes to accounting knowledge for nonfinancial managers. The more a manager knows about how the people who deal in numbers handle department finances and the methodologies they use, the more that manager will be able to intelligently work with them, making everyone’s job a little easier. So, let’s take a few steps into that world of accounting.