Accounting is a measurement of monetary transactions of a business that describes the value and changes within a company.
Generally, this type of accounting is used by an external regulator to gather information about a company’s financial performance. The concept of accounting is usually divided into two broad areas:
Managerial and financial accounting for small business entrepreneurs is an essential part of the business to keep the business afloat and understand their current liabilities and cash flows.
Key formulae to understand
Small business accounting can be divided into two types:
Financial accounting: This type of accounting summarizes the financial transactions from a business’s accounting period into financial statements, such as P&L statements (or, income statements), cash flow statements, and balance sheets.
At larger businesses, these documents are typically audited by an external regulator and act as a measure of your company’s economic performance.
At startups, these statements are shared with key external stakeholders such as your investors and board of directors.
[A Balance Sheet in 30 Slides: Click Below To Play]
This type of accounting summarizes the financial transactions from a business’s accounting period into financial statements, such as P&L statements (or, income statements), cash flow statements, and balance sheets.
At larger businesses, these documents are typically audited by an external regulator and act as a measure of your company’s economic performance. At startups, these statements are shared with key external stakeholders such as your investors and board of directors.
Managerial accounting: Management accounting is a type of management accounting that focuses on your company’s financial strategies and operations. In most cases, you will have to hire an external auditor and business consultant to work on this type of management accounting.
Key terms to understand:
- Assets
- Liabilities
- Depreciation
- Accounts Receivables
- Accounts Payables
- Current Assets
- Non-Current Assets
- Current Liabilities
- Non Current Liabilities
- Drawings
- Capital
- Equity
- How to match Assets = Liabilities + Equity in a balance sheet
- Double entry book-keeping
By using business analysis, you will gain a clearer understanding of the underlying fundamentals of your business, improve your decision making process, and be able to better allocate your resources.
What Is a Balance Sheet?
The term balance sheet refers to a financial statement that reports a company’s assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company’s capital structure.
The balance sheet accumulates the effects of previous accounting choices, so the level of
net assets partly reflects the extent of previous earnings management.
In short, the balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
What to Watch for in Your Small Business:
Before starting any type of project or initiative, you should consider what are the risks and benefits associated with each approach.
After you have analyzed the strengths and weaknesses of all the options available, you can choose the one that best matches your business. Key questions to ask yourself:
- How many people are you working with? What is their experience?
2. How many people are you working with? What is their experience? Requirements: What specific rules or restrictions do your customers or market have?
3. What specific rules or restrictions do your customers or market have? Financial rules: What are your company’s funding requirements and other financial restrictions?
4. What are your company’s funding requirements and other financial restrictions? Legal rules: What is your market, its legal structure, and its regulatory requirements?
5. What is your market, its legal structure, and its regulatory requirements? Product or service: Which product or service is the most promising for your company and what do you need to do to make it successful?
References:
What Is a Balance Sheet? (2021). Investopedia. https://www.investopedia.com/terms/b/balancesheet.asp
