The term “accounting” is a general one that describes how businesses keep financial records. The process involves systematically recording, summarizing, and analyzing financial transactions to tax agencies and regulatory authorities. An accountant prepares the necessary statements and transitions related to a specified accounting period. Those statements are also important for a company to decipher their financial health, how to manage their operations, and what their cash flow is.

The Types of Accounting

Under the accounting term, there are various practices. Each one has a specific process and goal.

Cost Accounting

The term “cost accounting” refers to recording the complete production costs that a business has. It measures costs that are both fixed and variable for each phase of a company’s option. It is meant to account for all the costs that are attached to any project or product. The goal of cost accounting is to understand what total production costs are so that management can make informed decisions. Costs that fall under the cost accounting type include labor, materials, and expenses.

Financial Accounting

Financial accounting is a classification that includes recording, summarizing, and then reporting all financial transactions for a business during a set period. The transactions involved help to prepare income and cash flow statements as well as balance sheets, to demonstrate a business’s results for a given time frame.

Managerial Accounting

Managerial accounting is the most important type of accounting to help managers make decisions and strategic plans for their business’s specific needs. All the data that is collected is helpful to help a company remain competitive in their given industry. The most important datasets are those related to budgeting, sales, investment, and cash flow assessments.

Tax Accounting

Tax accounting is involved in various tax laws and the pertinent information necessary to be compliant when filing your tax returns. Tax accounting is based around yearly financial statements and is used for taxation rules and regulations. Tax accounting facilitates inflow and outflow and who a company is connected to financially.

The Importance of Accounting for Your Small Business

Budgetary Guidance

Using accounting helps you to create realistic budgets and stick to them. That way, you can save money, prepare strategies for growth, and control expenditures. You need various financial information to develop a budget, and accounting helps to prepare financial statements that can curb spending.

Loan Approval

At times, businesses will run into cash flow limitations that might require short- or long-term loan assistance. Proper accounting recording is necessary to apply for and be approved for loans. Records such as current profits, positions, liabilities, and assets are all things that lenders will examine to find out your creditworthiness for borrowing.

Big-Picture and Daily Decisions

Although most small businesses only use accounting as a way to measure what comes in and what goes out and to be tax-compliant, using financial information is an excellent way to plan the overall strategy and daily decisions for your business. When you properly collect, summarize, and interpret your financials, it can help you to make wise and informed decisions about growth and other daily operations.

Stakeholder Reporting

Financial statements are essential to provide stakeholders information about the business’s financial health. Creditors, investors, employees, government agencies, and debtors all rely on stakeholder reporting as a reliable means to measure a business’s financial viability.

Profits Reporting

The only way to decipher how well a business is doing is through their profits. Accounting that seeks to report a company’s profits is essential to know that a business strategy is working and to ensure that you make necessary adjustments when profits dip.

Although people often talk about “accounting” as if it is just one thing, there are many different types of accounting that are essential for your small business. Accounting involves more than government agency compliance and measuring what goes out and what comes in. If you want to find the most success possible, using the different components of accounting for planning is essential.

At Current Accounting, we help prepare the accounting reports that you need to ensure your business’s financial health, as well as to make big-picture decisions that help take your business to the next level. Contact us today and let us be your accounting guide!