Accounting
Accounting involves recording, summarizing, and analyzing financial transactions. It ensures accurate financial reporting, compliance with regulations, and informed decision-making for businesses and individuals.
What is Accounting?
Accounting is one of the key functions for almost any business. It may be handled by a bookkeeper or an accountant at a small firm, or by sizable finance departments with dozens of employees at larger companies. The reports generated by various streams of accounting, such as cost accounting and managerial accounting, are invaluable in helping management make informed business decisions.
Types of accounting
Financial Accounting
Focuses on preparing financial statements for external stakeholders, adhering to GAAP or IFRS standards to ensure transparency and consistency.
Managerial Accounting
Provides internal management with financial data for decision-making, planning, and control, including budgeting and cost analysis, tailored to organizational needs.
Tax Accounting
Centers on preparing and filing tax returns, ensuring compliance with tax laws, and optimizing tax positions through strategic planning and advice.
Auditing
Involves examining financial records and statements for accuracy and compliance, assessing internal controls, and identifying risks or areas for improvement.
How do most businesses do accounting?
Accounting software
Accounting software is one of the easiest, most cost-effective ways for solopreneurs and small-business owners to get the hang of accounting. Using in-house accounting software, business owners track their finances, organize their income and expenses and generate accounting statements that inform their business decisions.
Accounting software can cost as little as nothing a month to thousands of dollars a year. It’s worth noting that next to no one offers accounting services without software: Whether you choose to keep accounting in house or outsource it to a full-service accounting firm, you and your accountants will be relying on either desktop or online accounting software to automate, streamline and simplify financial analysis.
In-house accountants
While many business owners start out doing their own accounting, this solution usually becomes impractical as they hire more employees and their business finances become more complicated. Some business owners choose to employ in-house accountants who use accountant-friendly software to manage the business’s finances.
Working with a full-time accountant can be cost prohibitive for small-business owners, which is why some of them prefer to work with accountants on retainer instead.
Outsourced accounting firms
Top accounting software solutions
If you’re new to business ownership and plan to manage most of your business’s finances yourself, at least initially, accounting software is a good starting point. (We also recommend meeting with an accountant one on one who can help you understand accounting basics as they pertain to your unique organization.) Our piece on the top accounting software for small businesses can help you find popular online accounting products and take control of your business’s financial health.
Below, we list three of our top accounting software recommendations for business owners who don’t know much about accounting — yet — but are eager to get started.
FAQs on Accounting
Accounting involves recording, summarizing, and analyzing financial transactions to provide accurate financial information.
It ensures financial transparency, aids in decision-making, and ensures compliance with laws and regulations.
The income statement, balance sheet, and cash flow statement are key financial statements.
Financial accounting targets external stakeholders, while managerial accounting focuses on internal management needs.
Generally Accepted Accounting Principles (GAAP) are standards for financial accounting and reporting.
Procedures and policies implemented to safeguard assets, ensure accurate financial reporting, and promote operational efficiency.