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Definition of Accounting

Accounting is the term associated with the methods and knowledge surrounding

  • -the recording of transactions
  • -holding and keeping track of financial records
  • -tax advice
  • -internal auditing
  • -analyzing financial information in order to advise management
  • -ensuring the financial strategy of the business is aligned with overall business strategy

This is all done systematically, and will result in knowing the business’ profit and loss for a given period, as well as the value of the business’ assets, liabilities, and owner’s equity.

There are 2 types of accounting: 1/ Financial accounting and 2/ Management Accounting.

Financial accounting entails recording, summarising, and reporting the transactions of the business over a certain period of time.

Management accounting entails producing financial reports and accounts so that management can make informed decisions based on the company’s finances. Usually, periodic reports are sent to management by the accountants. Financial statements are drawn up and kept by the accountants so that they are available for inspection by government bodies. This is to make sure that there is no misleading financial reporting within the business.

Analyzation within Accounting

The practice of accounting also entails analysis of results. After the results have been summarised, an analysis takes place so that the business can compare, plan, reflect, and consider strategies. This helps to evaluate overall performance of the business by withdrawing all positive and negative points.

Accounting and Startups

Often, entrepreneurs can feel anxious when it comes to facing up to the sheer amount of financial documents that appear before them. However, accounting often provides the entrepreneur with the clearest image of their company’s success (or lack of.) For startups, having a clear understanding of your company’s finances will make your job a lot easier when it comes to asking banks for loans, seeking investments, and writing business plans. Business plans should include economic forecast, expected startup and monthly expenditures, and pro forma financial statements. This information is closely analysed by banks and investors to ensure that the entrepreneur has a clear and realistic idea of financial expectations. It is also vitally important for startups to manage their accounts properly for legal and tax reasons.

You can find out more about accounting here:

For startups: Why Accounting is Important for a Startup Business

Management Accounting: a definition by the Business Dictionary

Financial Accounting: Investopedia's definition

Overview of Accounting: What is Accounting by Investopedia

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