In order to carry out the correct management of a company, it is necessary to carry out the correct management of its accounts. This allows us to know what is done with the company’s money and the potential benefits that the accounting activity will bring. This accounting of the company, as the name suggests, is responsible for all the economic and financial movements that occur within the organisation.
Business accounting is a means of organising the financial situation of any company, entrepreneur or SME. For this, it is necessary to pay attention to the collections, balances, loans and day-to-day debts of the business. Any action carried out by the company must be recorded in the accounts, to be able to know at all times the history of the company and to improve decision making.
Business accounting is the discipline responsible for recording all the company’s movements and classifying them in order to analyse and interpret the results of the company and the situation in which it is located. Thanks to accounting, we can know what the state or health of our company is and know if we are going in a positive or negative direction.
The main objective of accounting is based on providing economic information to the managers of the company to know what is being done, whether they are achieving, or not, the goals set and making decisions based on the company’s results.
There are different kinds of accounting depending on the objectives you have. Although the maximum purpose is the same, each of the varieties of accounting has its own characteristics that make it different from the others, although some are intrinsically related.
Finally, we must take into account that it is mandatory to have accounting even for small companies and self-employed. It’s essential to manage all the accounts of the company correctly, so as to avoid unnecessary charges from HMRC.
Business accountancy is global and universal, applicable to all businesses, no matter their size, industry or sector.
Thus, among the uses of accounting, we find:
Recording economic-financial movements: One of the main functions of accounting and, perhaps, the most basic, is to make a record of absolutely all economic movements that occur in the day to day running of the company.
Reporting: Because, be it a sole proprietorship or a larger company, such as a limited company, accounting serves to inform, in a clear and truthful way, about the financial situation in which the company is located. Thanks to accounting we will know if a company has sufficient liquidity and solvency or, on the contrary, is on the verge of bankruptcy.
Decision making: Accounting in a company also serves to make correct decisions in shorter times and, in addition, provide the necessary information to plan, evaluate and control these actions. Because the accounts will not only interest the owner at that moment, it is also convenient to keep these records, because the case that you may present them to a third party, such as a financial entity, for example, may occur.
Providing for the long term: What will happen in the future? Do you have enough assets to face a crisis? Accounting allows forecasts of sales, expenses and other calculations necessary for proper management of the company.
The main advantage of business accounting is, perhaps, that it helps the company to obtain financial and non-financial information; in addition to facilitating its classification, order and presentation, thus improving the decision making and the general management of the company.
Likewise, accounting, since it details all movements in a historical and detailed manner, allows us to optimise cost management, learning from past mistakes, detecting duplicate processes and allowing us to implement a much more effective and efficient management strategy.
As you know, accounting is a very broad science, whose main objective is to collect, structure and give meaning to all the movements that occur in a company. Therefore, transferring all this into economic terms in the accounting of a company becomes very complicated and abstract.
Therefore, there are many accounting classes that exist. Choosing and basing ourselves on any of the varieties of accounting will depend on many factors, such as: the origin of the resources, the activity of the company or the type of information that is worked on.
Get all the accounting documentation: It is essential that you collect all the income, expenses and other operations concerning the activity of your company. Demonstrating any operation with a document of proof is recommended, to keep a good control of your accounting. Without documents that prove what is recorded in the registry, its truth may not be justified.
Keep track of income and expenses: Remember that all the movements and economic operations of the company, as well as their payments and collections, must be accounted for.
Take taxes into account: It is very important to have a record of the different taxes for companies that you will have to present in the terms and dates indicated by HMRC. Annually, you must present all accounting books and Returns.
Check the different minutes, accounts and balances: In this way, you will have the certainty that the collections and the payments, as well as the supporting documents, are not wrong or duplicated.
Keep the accounting up to date: Do not leave for tomorrow what you can do today. Having your accounts and records up to date will save you time and hassle. Set aside some of your time for paperwork and do not leave it until the end of the year.
Regarding the main characteristics of accounting, we find the following:
Business accounting uses both quantitative and qualitative information. Quantitative information is easy to measure since it refers to the calculation of financial transactions (usually through simple formulas); Qualitative information refers more to the importance given by each company to certain data and information in order to make decisions. Both types of information are important and necessary to direct and manage the business.
Another feature of accounting is that it covers all business operations in a systematic, historical and chronological manner. That is, a protocol is established on how to proceed and collect each economic movement that occurs. Likewise, a record of all this is kept and allows to establish comparisons between different periods, thus studying the good or bad progress of the company.
The accounting of a company focuses, ultimately, on the decision-making process and helps reduce the degree of uncertainty throughout the process. It is a science that helps, thanks to the comparison between periods and the calculation of forecasts, to have a focus on the future, not only past but also on the present.