Accounting will always be a crucial part of business, whether you have the background for it or not. But small business owners should not be afraid of the concept. Instead, you should do your best to understand what accounting services are, and from there, decide to employ the right experts for your business.
A little history lesson on accounting: it dates back as old as civilization. In ancient times when people were just starting to form societies, a method of counting food and other goods was created. This involved scribes making inventories of everything to make sure the harvest will feed everybody in the community.
This simple process of noting down how much food is available evolved over the years into what we have today. The fundamentals of modern accounting involve two concepts: debit and credit. When you narrow it down to what you have and what you owe, it becomes simpler, right?
However, as a business owner, the fundamentals of accounting might not be enough to keep your business running. You must learn about the two common types of accounting too.
Your annual reports are part of financial accounting. No matter how small your business is, you need yearly reports to show the cash flow for the whole year and how well your business has been performing.
Your reports when tax season comes are a very good example of financial statements. Every year, you are required to file about your finances to the Canada Revenue Agency (CRA) or the Internal Revenue Service (IRS) if you are in the United States. From this annual activity, you already had a taste of financial accounting.
For a business, financial accounting is a little more complicated in that there are rules to be followed. The GAAP or Generally Accepted Accounting Principles are the rules followed in the U.S., while the rest of the world followed the International Financial Reporting Standards (IFRS).
These rules were created to regulate financial statements and create common practices in the accounting world. It also acts as a standard for the authorities, and even investors, to spot irregularities in the business. The main purpose of financial statements, after all, is the transparency of a business through numbers.
Business or managerial accounting is a small-scale accounting of an organization. It can be monthly or quarterly auditing of cash flow. And the primary difference between managerial accounting from financial accounting is its results.
Managerial accounting is done not only to account for the cash flow and ensure transparency. It is also done to predict future trends in the financial world. Knowing the likely future will help you make business decisions accordingly.
Aside from that, managerial accounting also lets you take a microscopic view of how your company is doing. Because you are looking at the data from shorter periods, like a month or a quarter, you’ll understand better how your business spends, profits, and performs. It will be easier to digest how your business is doing and how you should improve it.
The main focus of managerial accounting is to provide a more in-depth analysis of your business, with a basis on past data to predict future outcomes. As a result, it allows you to make better decisions because you have a clue of what might be in store for your business.
Do I Really Need Financial And Business Accounting Services?
The answer is yes. As a responsible business owner, it’s not a matter of choice whether you have a business or managerial accounting or not. Doing financial accounting every year is a regular part of your routine—so should managerial accounting be in shorter intervals.
It’s true that managerial accounting is an optional process—you can either do it or not. Small business owners often don’t see the need for it. However, if you really want your business to grow and expand for the long term, it’s a practice that you should start doing now.
Financial statements at the end of the year give you a summary of all your business transactions from past records within a year. But managerial accounting gives you a closer view of your business through monthly or quarterly reports. That is what differentiates these two kinds of accounting.
Your financial statements are proof of how well your business did in a year. And managerial accounting reports will let you know the areas for improvement so you can pat yourself on the back at the end of the year.
If you’re worried about how to manage two types of accounting for your small business, there’s always an accounting consultant to your rescue. Accountants are trained to help your business grow by recording your transactions and helping you make the best decisions based on your data.
Don’t burden yourself with additional accounting tasks. Just hire professionals to do it for you. If you’re looking for a consultant, talk to us here at Unloop, and we’ll give you the best accounting advice for your business.