Theme: Accounting matters

Theme: Accounting matters

Shodiya Kayumova

Plan:

• What is Accounting and Why it Matters For Your Business
• The different types of accounting
• Why accounting matters for your small business

A simple definition of accounting

Accounting is how your business records, organizes, and understands its financial information.

You can think of accounting as a big machine that you put raw financial information into—records of all your business transactions, taxes, projections, etc.—that then tells you a story about the financial state of your business.

Accounting is how you get a clear picture of your financial position. It tells you whether or not you’re making a profit, what your cash flow is, what the current value of your company’s assets and liabilities is, and which parts of your business are actually making money.

Accounting vs. bookkeeping

Accounting and bookkeeping are both part of the same process: keeping your financial records in order. However, bookkeeping is more concerned with recording everyday financial transactions and operations, while accounting puts that financial data to good use through analysis, strategy, and tax planning.
The accounting cycle
Accounting begins with recording transactions. Business transactions—any activity or event that involves your business’s money—need to be put into your company’s general ledger. Recording business transactions this way is part of bookkeeping.
Bookkeeping is the first step of what accountants call the “accounting cycle”: a process designed to take in transaction data and spit out accurate and consistent financial reports.
The accounting cycle has six major steps:
Analyze and record transactions. Collect any invoices, bank or credit statements, and receipts from business transactions.
Post journal entries to the ledger. It’s time to take those documents and start making journal entries for your transactions. Journal entries include three components of a transaction: when it happened, what it was for, and how much it was. Some businesses use single-entry accounting where only the expense or revenue is entered. But more common is double-entry accounting, which records each transaction in two accounts: where money is coming from and where it’s going.