My Blog

Importance of Accounting: Basic Financial Concepts to Know

by admin on August 5, 2015 Comments Off

Some business owners are doubtful about the importance of learning accounting. For them accounting is just for accountants, and they will just have to rely on what their accountants say. They tend not to analyze financial statements because they are relying upon the presentations of their CAs. But, how important really is accounting? Is it worth to be studied, especially by owners and managers? One thing is for sure, accounting is important. Come to think of it, if it isn’t necessary, then why are accounting services Singapore booming? This article will help you realize the significance of accounting.

Types of accounting.

First to learn are the types of accounting. There’s accrual basis of accounting and the cash basis of accounting. Both methods may be used to communicate financials, only that they are different in terms of timing of recording income and expenses.

Cash basis of accounting records income as they are collected and expenses as they are paid. So, even if you performed a service in June, but the collection was made in July, you still have to record the income in July.

Meanwhile, accrual basis of accounting records income as they earned and expense as they are incurred. Citing the previous example, if you performed a service in June, you will have to record the income in June even if collection will still be in July. Because of the delay in the receipt of cash we have to record the income first as Accounts Receivable. For expenses we may use different accounts such as accounts payable, interest payable and utilities payable.

The best method to be used is determined by the size of the entity and complexity of transactions. If you find it hard to decide, you may seek guidance from accounting firms in Singapore.

Why accounting matters

Accounting is not just about bookkeeping services. It is actually the language of business. Learning it will make you realize that the figures produced by your accounting books mean a lot. It will help you pinpoint areas for improvement. Accounting can also assist you in planning for future expansion. Authorities use accounting books in order to determine tax liabilities. Accounting is wider than you expect.

Tracking business performance.

If you we able to sell 100 pieces of your product in a month, you can’t simply say you have a profit. Financial statements, income statement in particular, will tell you specifically how much you have lost or earned in a month. In other words, it will help you track your business performance with certainty. Balance sheets on the other hand will guide you in monitoring how much are your assets, liabilities and equity in a given period. This will help you to determine if your business is actually growing or not.

Cash movements, on the other hand, can be examined through the Statement of Cash flows. You will see here what items are your cash coming from or going to.

Accounting software in Singapore

Should you want an accounting system for your business, you have a lot of choices like Xero accounting, Quick Book or MYOB. Nevertheless, you may also opt to choose actual persons performing accounting services in Singapore.

adminImportance of Accounting: Basic Financial Concepts to Know