Finance

All about Accounting

When is it recommended to work with an accountant? The answer to this question depends, first of all, on the legal form of the business and then on the volume of the business.

Thus, there is no obligation to hire an accountant for the management of your family businesses. If you have registered your business in this form, it is your duty to ensure simple accounting, keeping a strict record of earnings and payments, and for this, there is no need to collaborate with an accountant. Instead, if you have a large volume of activity, with many daily records, you may find it more appropriate to teach a specialized person this registration, bookkeeping and accounting activity.

Also, it is necessary to work with an accountant for the registration of employment contracts, the record of the working relations, the preparation and periodical submission of various statements of payment to the state budget and social insurance. Go here for more info.

If, on the other hand, your business is legally registered in the form of a company, cooperatives, joint stock companies, etc., collaboration with an accountant is necessary from the very first moment of starting work, regardless of the amount of work or number of employees you will have. This time, business accounting will be kept in doubles, and for this you will need an accountant that you can hire or collaborate with an accounting firm outsourcing this service.

What accounting information do you need?

As an entrepreneur, you do not need to know in detail the accounting aspects of your business. Instead, it is very useful to have the basic concepts that will allow you to request and interpret various financial statements on which to base your decisions.

You can choose to plan in advance how you have to act if the company is experiencing problems or encounters certain opportunities, or you can choose to react to problems only after they occur. If you choose the second option, you will not have time to plan and develop your business, all your energy and time being consumed in solving current problems.

An entrepreneur must have minimal accounting knowledge to extract the information he needs to plan his business:

  • will have to be able to distinguish between the assets and liabilities of the business;
  • will need to be able to read and interpret a verification balance;
  • it is useful to be able to interpret an accounting balance sheet;
  • it is useful to be able to interpret the data presented in a profit and loss account;
  • it is important to be able to draw up a cash flow of the business;
  • it is important to be able to draw up a forecast budget for the business it manages;
  • it is useful to know the level at which the business reaches the critical point, namely to determine the profitability threshold of its business;
  • even if it is the accountant’s task, an entrepreneur needs to know how to calculate the salaries of his employees.

The assets and liabilities of the business

The accounting equation binds assets, liabilities, and equity through the following relationship, which is also the mathematical structure of the financial statement:

Active = Liabilities + Equity

Current assets are those assets that are cash (or cash equivalent) or that can be converted into short-term cash, such as commodity stocks, receivables or short-term financial investments.

Fixed assets are those that cannot be converted immediately into cash, such as land, buildings, equipment, vehicles and furniture. This includes intangible assets, non-material assets, such as company-owned trademarks, patents, licenses, copyrights, franchises, etc.

Current liabilities represent the short-term liabilities of the company at the end of the accounting year, due in the following year. This category includes short-term bank loans and debt to trading partners.

At the same time, long-term debts and obligations are highlighted separately. In this category are highlighted the payment obligations that solace has to banks, financial institutions, long-term commercial partners, for more than a year.

The launch of any business is always accompanied by enthusiasm, absolutely necessary for an entrepreneur in the beginning. However, it should not prevent us from taking economic decisions based on the analysis of key economic indicators. Therefore, any entrepreneur should know and calculate the profitability threshold of his business or, in other words, the level at which the company will make a profit by covering all its fixed and variable costs involved in the production or supply process of services.