Accounting - Do not reinvent the wheel When accounting for the future of your business'

It 's been said that the only thing constant is change, and if you've been in business for a certain period of time, you know how true this is. If there is one thing that puts the companies that are successful in the long run-think IBM, General Electric, Wal-Mart and Microsoft, for example, in addition to any other, is their positive reaction to change.

Adapting to change will affect a company's ability to capture and retain its market, and grow their businesses profitably sell their products and services. However, every small business owner or manager must learn to distinguish between those business processes that need to evolve and those that should remain stable.

When change is destructive

While evolving to meet the changing needs of consumers and an ever-changing technological environment is essential, there are some business processes where change and evolution are counterproductive, even destructive. Financial accounting is one of them.

The accounting scandals that led to several major companies in the early 2000 has shown the destructive potential of becoming too "creative" when it comes to financial accounting. While the government has passed a law that has tried to tamp down these accounting irregularities, is still primarily the responsibility of employers and their accounting professionals to create and provide financial information which is what I call Artistic: accurate, relevant and timely.

The accounting rules and can change over time to reflect changing business models and new types of business transactions. However, financial accounting as a business process should remain stable, rising only after careful consideration is given to the potential implications for signaling operations differently.

A complete overview of the basics of financial accounting is beyond the scope of this article. However, by sharing some standard accounting concepts with you, I hope they motivate you to take maybe a little 'closer look at the budgets of the CPA slide across your desk the next month.

The Chart of Accounts

First things first: the registration system for financial data that is known as the chart of accounts. This is a systematic list of account names and numbers associated with all accounts used by your company, arranged in the order they appear in your budget (more on them in a minute): usually the assets, liabilities of the owner or shareholder's equity, revenue and expenses.

A chart of accounts allows the synthesis of ordered and reporting all financial transactions of your business. For example, you can go back and look at all the supplier invoices paid during a given period of time to determine exactly what the job was done, why it was done and what the organization has benefited from the expenditure.

Think of the chart of accounts as a set of segments, each with a particular type of data within. There could be a bucket for each asset your company owns, any debt you owe, every product or service you sell, and every type of expense you incur for selling products and services.

The chart of accounts is an organized, comprehensive list of all these buckets. The buckets, in turn, are labeled with the appropriate account number and organized by type of data in their possession. They can be rearranged in the course of the accounting process their contents are counted and checked (usually monthly) reports can be produced so that summarize the data contained therein.

The General Ledger

No, this is not the person who secretly runs the accounting department and all those who report no one can read! The general ledger is where all accounting transactions ultimately, stop, and the data source for your budgets.

Think of the general ledger as a big, old-fashioned scale that is always in equilibrium, adding and subtracting an amount of compensation and weight on each side. All the buckets that appear in the chart of accounts are arranged in one or the other of the trays. As transactions occur, each segment is added to the appropriate data that represents the financial effect of this transaction.

When something is added to a bucket on the asset side, for example, something else of equal value or must be removed from the asset (such as money paid for the purchase of the property) or in addition to the liability side ( For example, a loan taken out to pay for it). In this way, the scale remains in balance and your company has a quality assurance system to ensure that the entire transaction was properly recorded.

The Budget

These are the real "meat and potatoes" of small business accounting. There are three main formats of financial statements appearing in annual reports and more business' internal monthly financial reports:

Or Balance Sheet: This shows the company's financial situation from a particular date, usually at the end of the fourth month, or year. It lists all the activities of your company on one side and all liabilities, on the other. The difference between the carrying amounts of assets and liabilities is equal to the interest accruing to capital owners.

Income or: also commonly referred to as income, or PandL, this sums up all the business activities that were intended to produce a profit. It lists the amount of sales, all costs incurred for effecting such sales (or cost of goods sold), and overhead expenses incurred in managing your company's operations (eg, salaries, rent, utilities, etc..)

Statement or Cash Flow: This shows the effect of all transactions involving cash or influenced, but did not appear on the income statement. For example, if you borrow money and deposit it in your bank account for later use, with no income or expenses have been created, so this activity may not be reflected on the income statement. Instead, he would go to the account of cash flows. Every transaction that occurs in your business between the two dates of the budget will be reflected both in the income statement or the statement of cash flows, and from those two reports summarized the results appear in your budget in the form of net changes to the balances.

Make better decisions

The key to sound decision-making will be your ability to understand and use these critical business relationships. They are the result of condensation of all financial transactions of your company has undertaken, and the result should be accurate, relevant, timely and inclusive.

This is a role that can not be delegated. Do not shy away from asking your accounting department or CPA to explain every aspect of these relationships until you really understand them. The success of your business depends on it ....