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Accounting allows you to communicate with numbers. It helps you tally up what you have spent, what you need to spend, your assets, income, debts, and everything else that adds up to define your business.
Your business basically is a balancing act:
Accounting systems allow you to keep these three elements in balance.
- Products or Services (what you make or sell)
- Expenses (what you have to pay to do business)
- Income (what you earn)
The operating results of a business as well as its financial position can be ascertained only through systematic recording of transactions. There are certain general principles to be complied with for the systematic recording of transactions.
Accounting system should provide an accurate picture of the business and how it is doing. Setting up a good accounting system and understanding the numbers produced can make a major difference in how your business fares in the long run. The financial statements produced from your accounting system will help you with:
Accounting and Bookkeeping
The basis for every accounting system is a good Bookkeeping system. A good bookkeeping system keeps track of the nuts and bolts -- the actual transactions that take place. The bookkeeping system provides the numbers for the accounting system.
Accounting as the big picture of how your business runs -- income, expenses, assets, liabilities -- an organized system for keeping track of how the money flows through your business, keeping track that it goes where it is supposed to go.
- Bookkeeping refers to the daily operation of an accounting system, recording routine transactions within the appropriate accounts.
- An accounting system defines the process of identifying, measuring, recording and communicating financial information about the business.
- So, in a sense, the bookkeeping function is a subset of the accounting system.
- A bookkeeper compiles the information that goes into the system.
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