Accounting in Business

What is Accounting in Business?

The role of accounting in business is to help interested parties, both internal and external, to make business decisions.

Accounting is the recording of financial transactions of a business or organization. It also includes the process of measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers.

Various key reports produce from the financial accounting help businesses to direct and control their operating activities and also to make various business decisions.

Role of accounting in business aids in the making of business decisions

The financial details in profit or loss/income statement explain how the business was traded for a specific period of time. The assets, liabilities and equity in balance sheet snapshot the mode of trade in a business at a specific period in time.

Other supportive reports such as monthly budget reports, sales report, debtors and creditors ageing report, debtors statement, creditors balances, bank reconciliation help businesses to direct and control their operating activities and to make various business decisions.

Below are some examples on how the role of accounting in business aids the business decisions:

a. A profit or loss or income statement lists your sales and expenses and is generally recorded on a monthly, quarterly or yearly basis. It tells you how much real profit you’re making or losing. A profit or loss or income statement can help you develop sales targets and an appropriate sales price for goods/services using tools like the break-even, profit margin and mark up calculators;

b. If the income statement shows a high rate of goods return, this could point to problems with your product that need to be addressed.

c. Balance sheet can highlight trouble areas, such as chronic late payment fees for supplier bills, income taxes, GST that you owe.    

d. A carefully prepared budget report will allow your committee of management to make the right decisions to lead the organisation into a secure and profitable future;

e. Sales reports enable a manager to track how much time salespeople are spending on different sales activities, if they are meeting their productivity goals, and whether their efforts are translating into real sales. The information in these reports plays a critical part in helping a manager oversee the success of the sales team and essentially the whole company.

f. “The longer a debt is owed, the less likely you are to be able to collect it.” So, knowing about your customers and their debts is vital to collecting from them. One of your most important debt collection tools is debtors aging report.

Besides, management accounting also motivates managers and other employees towards achieving organizational goals. Organizations are able to achieve their goals if employees are well motivated.

Kindly contact GSMI if you are looking for Accountant to help you on cash flow planning and business decisions making.