Cheat Sheet To Financial Accounting
You need to have a good Accounting ability if you seek immense growth, sustainability & longevity of your Business. Let us understand how Cheat Sheet To Financial Accounting works:
- Create & Manage Budgets: You will be able to maintain a clear & systematic system of keeping an account of your budget. When you create & manage a budget, you will always be able to make the appropriate use of all the available resources without disturbing the defined budget.
- Forecast the Future Revenue: Good Accounting helps you foresee the nearing future with respect to the revenue. Thus you will always be prepared in advance for the upcoming.
- Determine & Understand the best time for all major purchases: You will be able to determine the best possible time to invest in purchases.
- Tracking the Expenses: When accounting is maintained, you will be saved from making unnecessary expenses. It helps you maintain a track of all the expenses throughout the time.
- Track the Financial Health of the Business: It helps you understand how well is your Business company performing in all aspects.
- Determining the need to adjust operations or personnel: Accounting and Management help you determine the right time when you need to adjust the personnel or operations for the betterment of the Business.
- Maintaining Accurate Records for Future Investors & Bank: You will be able to convey accurate financial records to your investors in the future which increases the credibility of your Business Firm.
- Determine the Growth Rate of your Business: When accounting is maintained, you will be able to understand and analyze whether your Business is growing as per the expectations or not. You will also be able to determine whether the progress is fast or slow. Thus you will be able to take the required actions.
But, Why do you need Good Accounting Practices for your Small Business Company?
There are many subjective reasons. When you lack adequate accounting procedures as a part of your business systems, you will get a step closer to the financial crisis. There wouldn’t be time left for you to regret or repent the financial damages once incurred and thus the business will suffer hugely. As per a study, the average lost time required to fix and implement into the system is around 200 hours or even more.
Consequences of poor record keeping are as follows:
- Increase in Credits as you will have many unpaid & overlooked expenses.
- You will be subjected to many penalties as a result of paying taxes late.
- Assets would be mingled like savings with checking, personal with business and many more.
- Difficulty in paying your bills & also your employees.
Let us know understand the Cash Flow Cycle:
Cash Flow is defined as the complex & vital process which requires the knowledge of a particular Company’s financial accounting systems along with the General Management of the Financial Information. It also helps in maintaining the inventory control properly.
The basic formula of Cash Flow covers:
- Accounts Payable: This indicates Taxes minus Bills. This means you need to separate Liabilities from the money you owe.
- Net Income: This means you need to minus Revenues from Expenses. This gives you the Net Income.
- Accounts Receivable: Here, you will minus the assets from the money you receive.
Documents required for the above are:
Every Business Company appoints financials with the main objective of evaluating the current condition and health of the Business Company. You need:
- Profit & Loss Statement
- Balance Sheet
- Cash Flow Statement
How do you read the above statements?
Profit & Loss Statement:
- It shows you the net profit using the major components like Revenue, Cost of Goods Sold, Gross Profit, Expenses & Net Profit.
- There are two basic equations for this statement. They are Revenue – Cost of Goods Sold = Gross Profit. The second equation is Gross Profit – Expenses = Net Profit.
This is the statement that gives you a complete overview of the current place of your Business Company. It includes:
- Assets like Cash, Stocks, Accounts Receivable, Inventory, Equipment & Vehicles.
- Liabilities like Credit Card Balances, Taxes, Accounts Payable, Accrued Payroll & Loan Repayments
- Equity-like Retained Earnings & Common Stock.
Cash Flow Statement:
This is the analysis of the cash generated & used during a specific period of time. This includes the following:
- Operating Activities
- Investment Activities
- Financial Activities
- Supplemental Information
Now, let us have a look at the different Sales Forecasts & Business Ratios:
Sales Forecast helps you estimate the future earnings which are typically for 1-3 years & also informs you about the sales strategy.
- Projected Annual Sales like Total Revenue till date + Run Rate x Remaining Number Of Sales Periods
- Projected Monthly sales acquired by Actual monthly sales from the same time last year / Last Years remaining Sales x Run Rate x Remaining Number of Sales Periods
- Historical Sales acquired by Company Revenue till date / Number of Sales Periods x Info on the product if the services have changed
- Current, Quick, Total Debt to Total Assets, Pre Tax Return On Net Worth & Pre Tax Return On Assets
- Other Ratios like Net profit margin, Return on equity, Accounts receivable turnover, Assets to sales & Current debt / Total Assets
So how do you find a suitable Business Accountant?
You need to select the most appropriate business accountant for attaining the respective results as desired. You need to understand the proficiency of the service provider so that you invest in the right solution. Keep in mind to check whether it has all the necessary certifications like CPA, CMA & CFA.
It should have adequate Industrial Expertise in maintaining and managing the accounts of Business Company irrespective of the size and nature of the same. This is why you make sure that you appoint the correct official professional when it comes to maintaining the Financial Accounts.
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