Accounting is the universal language in business

May 29, 2020

When we look at financial statements, we are able to understand the financial status of the business. Regardless of what language is primarily spoken in the business entity, accounting is the common language that connects us to the business without hindrance. Accounting tells us how profitable your business is, what you can expect from your business down the line, and so much more.

Monthly/quarterly financial statements can help you increase control over your business:
Preparing financial statements once a year for tax return purposes is a bare minimum. More frequent reviews of your accounting information, however, will give you greater control over your business. You can better utilize financial data to your advantage for day to day business practices and decision making.

You might want to know:

  • How much revenue your business generates
  • How much expenses your business incurs
  • How much profit your business earns
  • How valuable your business assets are
  • How much debt your business owes
  • How your business is doing compared with the industry average
  • Whether your business is getting better or worse

With monthly reviews of financial information, we would be able to lay down the ideas including the trend of sales, expenses, and profit, and forecast the relevant numbers for the next month/quarter/year. We can then formulate strong strategies and a precise cash budget. It is risky to rely on just your senses and instinct to judge your business performance; your judgement should be informed by firm numbers.

Accurate bookkeeping is the foundation of reliability: If the raw data is not accurate, the information you are seeing is misleading.

Such inaccuracies can lead to:

  • Incorrect income tax calculation
  • Inaccurate budgeting and forecasting
  • Misinformed decisions on new hires
  • Dubious decisions on purchasing assets

What to do for accurate bookkeeping:

  • Timely and accurate posting of complete information
  • Use a correct chart of accounts
  • Post both revenues and expenses that are relevant to each other
  • Post all invoices and bills for the month and year
  • Tight internal control

Internal control can be enhanced by separating tasks of approving, entering, and paying bills. Tight internal control can help prevent fraud and decrease the risk of misleading financial information.