The Role of Accounting in Business

Good accounting is as vital to your business as good sales. The role of accounting is to provide you and any other stakeholders with financial information about the company, such as sales revenue, the cost of benefits and the amount you owe your suppliers. Without the information from your accountants, you can’t make good financial decisions for your business.

Management

Management accounting gives you and other executives information about company performance. When you’re selling lots of merchandise, you may feel you’re doing great, but the accounting may show a different story. If the cost of sales is high, that reduces your profits. If all of the sales are on credit, you may not have enough cash on hand to pay your suppliers or the power bill. Accounting provides details about your finances so you know when you have money to burn and when to be cautious in your spending.

Government

Taxes are a part of business life. You have to pay tax on your business’s income, Social Security on employee paychecks, sales tax and possibly several other tax bills. If you get the amounts wrong, the Internal Revenue Service or the state tax board can hit you with fines and penalties. A good accountant tells you how much to pay and what forms you need to fill out to meet your obligations. If you have to provide financial information to government regulators, your accountant provides you with that data.

Controls

The more your company grows, the harder you may find it to keep track of the money. That makes it easier for an enterprising but unethical employee to cheat you, particularly if he has access to the company accounts. A good accountant can spot warning signs that something’s gone wrong — a suspicious pattern of withdrawals or paychecks to non-existent employees, for instance. Accountants can also help you establish policies that reduce the opportunity for fraud.

Investment

Nobody’s going to put money into your company expecting to lose it. Investors want a profit. Banks want their loan money back, with interest. Your accountant can turn the basic facts and figures on the ledger into a cash flow statement and a balance sheet, which enables outsiders to sum up your finances at a glance. If your company is a good investment, hard numbers in accounting statements will do more to convince investors than any amount of honeyed words.

References

• My Own Business: Accounting and Cash Flow

Writer Bio

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he’s researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in “Newsweek,” “Air & Space,” “Backpacker” and “Boys’ Life.” Sherman is also the author of three film reference books, with a fourth currently under way.

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