Business Accounting: What You Need to Know

Business Accounting: What You Need to KnowHaving a good understanding of business accounting is essential to run a successful company. Even with the best products and services and millions of dollars in sales, without knowledge and use of proper business accounting practices your company will fail.

Business accounting is the process of creating and maintaining an accurate record of all of a company’s income and expenses to interpret its financial position. This process can be handled by hiring accountants or using online bookkeeping services or cloud business accounting software like ZarMoney.

Accounting Vocabulary

To understand and use proper accounting practices and processes in your business, you must be familiar with the basic accounting terms and vocabulary. The following are some

of the most common business accounting terms:

  • Net Income

Sometimes called the bottom line, net income is the amount of money a company has, after all, operating expenses are subtracted from the income it generates.

  • Income Statement

Also called a profit and loss statement, an income statement is a summary of all the revenue, operating expenses, profits and losses of a business during a specified period of time.

  • Journals

Also referred to as the company’s accounts, journals are where businesses record all of their transactions as they occur. The data is then transferred to official accounting documents, such as the general ledger.

  • General Ledger

This is an official accounting document in which every business transaction recorded in the company’s journals is organized to chart its accounts and provide a quick, clear view of the history of a company’s accounts.

  • Fiscal Year

This is a period of time used by companies for preparing financial statements, closing out their books, and providing all financial documents that are required for state and federal tax submittals. The fiscal year and the calendar year are not always aligned.

  • Current Assets

This is a list of cash, inventory, accounts receivable, and other resources a company is likely to use within a year.

  • Non-Current Assets

These are assets like computers, equipment, real estate, and vehicles that add value to a company over a period of one or more years.

  • Depreciation

Depreciation is the gradual loss of value of company assets over their lifetime, some of which can be deducted annually on the company’s tax returns.

  • Trial Balance

Trial Balance is an activity in which a company uses a worksheet to list its credits and debits to ensure any current balances are accurate. This enables the company to be able to confirm the final figures are correct before they produce their financial statements.

  • Forecasting

Forecasting is a process through which companies use their historical financial data in order to be able to predict future business trends. Forecasting is often used by businesses when they are trying to calculate their sales, expenses, supply, demand, and other resources for an upcoming period of time.

By having a good understanding of these common accounting terms, business owners will be better able to navigate the accounting world’s intricacies.

Proper Accounting’s Role and Importance

Whether you hire an accountant, use an online bookkeeping service, or ZarMoney or some other cloud business accounting software, understanding proper accounting’s role, and importance is crucial.

Proper accounting can help you make financial decisions that are best for your company. Using good accounting practices and procedures can reveal the financial course of action that’s best suited to your company and can help show the steps you need to take for it to flourish.

Using an online bookkeeping service, hiring an accountant, or using cloud business accounting software can make the process easier.

Bookkeeping and Accounting

Bookkeeping and accounting both have the same general purpose, but they are not the same thing.

Accounting involves interpreting financial data to provide insight and advice about the current and future financial activities of a company.

Bookkeeping primarily involves recording a business’ financial transactions accurately, extracting financial information for financial reporting and taxes, and analyzing the financial data of a company to determine spending and cost-cutting options and priorities.

It’s the first step in a company’s business organization and its financial planning as well.

Proper Accounting Helps Maintain Accurate Records

Whether you use an online bookkeeping service, ZarMoney, or another cloud business accounting software or hire an accountant, making sure your business maintains accurate

financial records are vitally important. Proper accounting practices and procedures ensure all revenues and expenses are entered into the company’s financial records and you are prepared if your business is audited.

It helps you create accurate income and expenditure summaries and always be aware of your business’ financial state. Plus, accurate accounting can help you better communicate the right course for your company.

General Ledger’s Role In Accounting

The general ledger is a key accounting tool and the epicenter of a business’ financial records. All revenues, expenses, and any other of your company’s financial transactions are recorded in it.

Accountants use the business ledger as the permanent record of a company’s financial progress. The data needed to create profit and loss statements, financial reports, balance sheets, and other financial documents come from the general

ledger the accountant maintains. Whether you use an accountant, business accounting software, or online bookkeeping service, this data must be accurately documented.

Financial Report

Accountants and accounting systems analyze the information from bookkeeping and ledger entries and all other financial records to create financial reports. Accountants use

financial reports to show where a business is making or losing money, the state of its capital investments, and where cash flow needs to be improved. A financial report provides an in-depth analysis of all a company’s complex financial data in a way that

clearly shows where the company stands financially. This is essential to have to make well-informed, accurate, financial decisions that are best for the company.

Business Accounting Software

Many companies find it convenient and cost-effective to do their business accounting using business accounting software. Good business accounting software is fast, easy to use, accurate, and can provide the financial reports companies need in a timely manner.

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