Even the smallest start up business needs to work with numbers. Many small businesses do not have the budget to hire in permanent accounting staff members and must rely upon 3rd party accountancy firms and consultancies in order to get the numbers straight. Here are the 3 areas of accounting which small businesses make the most use out of in their emergent years.
Cost accounting is the process of working out how much a company will have to spend in the creation of products or the provision of services. Accounting consultancies such as F9 Consulting help companies to create realistic forecasts of possible outgoings. This kind of accounting is especially important for companies with slim profit margins and small budgets. Without an accurate forecast of outgoings companies would struggle to price their products and services accordingly, hire an adequate amount of staff or set reasonable strategic aims.
Cost accounting involves the assessment of both direct and indirect outgoings. Indirect outgoings can include legal fees, changes in taxation law and other costs unrelated to the direct production of items or provision of services.
Managerial accounting is the creation and use of financial reports and data in order to directly steer a company in the right direction. Small businesses should always use financial data to help steer their managerial decisions. The correct use of this data is often extremely hard. Qualified managerial accountants are best suited to this role, which is why small businesses often hire in 3rd party managerial accountancy firms to help them if they cannot afford to take on accounting staff within their organization itself.
The aim of financial accounting is to collect, organize and utilise the financial data created by a business during their transactions and operations. All small businesses need to produce a comprehensive financial statement every single year. These financial statements allow a company to pay taxes correctly, monitor their growth and identify any issues that need to be sorted out if a company is to achieve its strategic aims. Stakeholders also need to receive a detailed financial statement. Without it, stakeholders would have very little confidence that they are making the correct investments.
Accountants typically go through the ‘accounting cycle’ when producing financial statements:
Recording Financial Transactions
A company needs to keep detailed records of all transactions in order for accountants to do their job correctly.
Transfer Financial Transactions
All transactions need to be stored in a secure financial ledger in order to be used.
All transactions are classified or coded by the accountant or accountants so they can be counted correctly.
Trial Balance And Adjusting Entries
The incomings and outgoings are formulated into a ‘trial balance’ at the end of the year that shows a rough picture of the financial situation. Adjusting entries are then made to account for any harder to quantify expenditure.
All data is then combined in order to produce the yearly financial statement.