Understanding Business Accounting For Dummies, 2nd Edition (5 page)

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Where to Go from Here

If you're new to the accounting game, by all means, start with Part I. However, if you already have a good background in business and know something about bookkeeping and financial statements, you may want to jump right into Part II of this book, starting with Chapter 5. Part III is on accounting tools and techniques for managers and assumes that you have a handle on the financial statements material in Part II. Part IV stands on its own; if your main interest in accounting is to make sense of and interpret financial statements, you can read through Part II on financial statements and then jump to Part IV on reading financial reports. If you have questions about specific accounting terms, you can go directly to the glossary in Appendix A.

We've had a lot of fun writing this book. We sincerely hope that it helps you become a better business manager and investor, and that it aids you in your personal financial affairs. We also hope that you enjoy the book. We've tried to make accounting as fun as possible, even though it's a fairly serious subject. Just remember that accountants never die; they just lose their balance. (Hey, accountants have a sense of humour, too.)

Part I

In this part . . .

A
ccounting is important in all walks of life, and it's absolutely essential in the world of business. Accountants are the bookkeepers, scorekeepers, and occasionally the gatekeepers of business. Without accounting, a business couldn't function, wouldn't know whether it's making a profit or loss, wouldn't know its financial situation, or if it was in danger of running out of cash.

Bookkeeping - the record-keeping part of accounting - must be managed well to make sure that all the financial information needed to run the business is complete, accurate, and reliable, especially the numbers reported in financial statements and tax returns. Wrong numbers in financial reports and tax returns can cause all sorts of trouble.

Speaking of taxes, you can't take more than three or four steps before bumping into dreaded taxes. No one likes to pay taxes, but managers must collect and pay taxes as part of running a business. In addition to income taxes, accounting plays a bigger role in your personal financial affairs than you might realise. This part of the book explains all this and more.

Chapter 1
:
Introducing Accounting to Non-Accountants

In This Chapter

Understanding the different needs for accounting

Making and enforcing accounting rules

Peering into the back office: The accounting department in action

Transactions: The heartbeat of a business

Taking a closer look at financial statements

Should you let your baby grow up to be an accountant?

M
ost medium to large businesses employ one or more accountants. Even a very small business could find value in having at least a part-time accountant. Have you ever wondered why? Probably what you think of first is that accountants keep the books and the records of the financial activities of the business. This is true, of course. But accountants perform other very critical, but less well-known, functions in a business:

Accountants carry out vital back-office operating functions that keep the business running smoothly and effectively including payroll, cash receipts and cash payments, purchases and stock, and property records.

Accountants prepare tax returns, including VAT (value-added tax) returns for the business, as well as payroll and investment tax returns.

Accountants determine how to measure and record the costs of products and how to allocate shared costs among different departments and other organisational units of the business.

Accountants are the
professional profit scorekeepers
of the business world, meaning that they are the ones who determine exactly how much profit was earned, or just how much loss the business suffered, during the period. Accountants prepare reports for business managers, keeping them informed about costs and expenses, how sales are going, whether the cash balance is adequate, what the stock situation is and, the most important thing, accountants help managers understand the reasons for changes in the bottom-line performance of a business.

Accountants prepare
financial statements
that help the owners and shareholders of a business understand where the business stands financially. Shareholders wouldn't invest in a business without a clear understanding of the financial health of the business, which regular financial reports (sometimes just called
the financials
) provide.

In short, accountants are much more than bookkeepers - they provide the numbers that are so critical in helping business managers make the informed decisions that keep a business on course toward its financial objectives.

Business managers, investors, and others who depend on financial statements should be willing to meet accountants halfway. People who use accounting information, like spectators at a football game, should know the basic rules of play and how the score is kept. The purpose of this book is to make you a knowledgeable spectator of the accounting game.