The Role of Accounting in Business

Role of Accounting in Business

Accountants consolidate financial information and translate it into easily understandable bites of information. They do this by reporting financial transactions, cash flows, and financial performance and keeping meticulous records from year to year.

This service is especially important for businesses. Shareholders and stakeholders expect to be kept updated with any financial developments, and an effective accountant can help discern any changes and explain them to interested parties. This kind of standardized reporting makes it easy to keep tabs on financial health over both the short term and the long term.

How do accountants help businesses, and what does their professional outlook say about the future of the industry? Here is a look at some of the ways business accountants can help your business thrive as well as what the industry’s future looks like.

Important financial statements

Accountants generate the following financial statements:

  • Income statements
  • Balance sheets
  • Cash flow statements

An income statement provides information about the company’s loss and profit over a set time period. Balance sheets are used to paint a broader picture of the business’s financial position on any given date, and it is especially helpful to management as they seek to make smart financial decisions. A cash flow statement bridges information from income statements and balance sheets and also reports incoming and outgoing cash during a particular period of time.

The importance of business accounting

Business accountants are important for a few different reasons. Here is a look at what the goals explained in our introduction look like in practice as well as how they impact business success.

1. Maintains records of financial transactions

Accountants spend much of their time carefully recording and analyzing financial transactions. This is important for a few reasons. First, businesses pay taxes according to the state of their finances, including the size and nature of transactions. Accounting ensures that this information is accurately recorded and reported via the proper forms. This, in turn, protects businesses from fines as well as other consequences stemming from inaccurate tax filings.

Maintaining records of financial transactions also makes it easier to spot trends in spending or profits, whether they are positive or negative. This, in turn, can assist business leaders in making informed decisions. These records can also help shareholders and stakeholders.

2. Proves results to interested parties

Another reason accounting is so important to businesses is that it serves as proof to interested parties. Lenders, creditors, and investors, for example, all have a vested stake in the success of the business in question. Some of them might even have the ability to sway business decisions based on their relationship with the company. Shareholders, for example, often have the ability to veto decisions such as large capital expenditures, especially if they don’t believe the decision is in the best financial interest of the company. Even when the parties in question do not have the ability to directly sway business decisions, potential investors and lenders will expect to receive information they can use to determine creditworthiness before they hand over any money.

Accounting can often be the deciding factor in these situations.

3. Evaluates business performance

We touched upon this briefly above, but the topic is important enough to warrant further clarification. Accounting helps to evaluate the performance of the business in question. This is important to many kinds of decision-makers both in and out of house. In addition to potential lenders, in-house leaders seeking to make decisions that stand to impact profit moving forward can use the reports generated from accountants to track possible debt, gross margin, and expenses.

Accounting also enables comparison from one period of time to another, offering insight about recent decisions and making it easier to spot trends in expenses or profits.

4. Aids in creating budgets and projections

Businesses typically require a lot of money to operate at peak efficiency, and leaders are always hoping to squeeze as much value from every dollar as possible. Future projections and budgeting, in particular, are incredibly important to business success and financial health, and financial records are a critical part of both processes. Budget planning is especially important here as it helps businesses save money, develop business strategies, and detect expenses over the agreed-upon budgeted amount.

Business projections and trends are also based on historical financial information to keep operations profitable. This means that financial information provided by experienced and detailed accountants is the foundation of both future projections and budgets, and without them, the accuracy of these plans is greatly diminished.

5. Monitors cash flow

There is a lot more to business finances than simply “profits” and “expenses”. Business operations typically follow complex financial processes that may see money move at a quick rate. Accountants monitor cash flow to ensure that businesses are doing well overall and that their financial goals and needs are being met.

Cash flow includes factors such as:

  • Employee salaries
  • Bills
  • Miscellaneous expenses

6. Detects and prevents fraud

An increasingly dangerous and pervasive issue facing professionals is fraud. There are six main types of business fraud, and good accounting can help detect and prevent most of them. They include:

  • Payroll fraud
  • Financial statement fraud
  • Asset misappropriation
  • Tax fraud
  • Identity theft
  • Corruption

Of the above fraud types, accounting can significantly mitigate the first four and helps detect the last two. Since an accountant is in charge of generating financial statements, handling taxes, and payroll monitoring, they are in a prime position to catch fraud before it impacts the business’s bottom line too seriously. This includes the issues of payroll fraud, financial statement fraud, tax fraud, and asset misappropriation, but it also encompasses identity theft and corruption. Both of these issues tend to impact a company’s money, and an alert and diligent accountant can often catch these issues before too much harm has been done.

7. Improves payment cycles

Accurate accounting systems developed by an engaged accountant with experience in the field and knowledge about your business can help enhance payment cycles. This means that they can improve the efficiency of payable and receivable cycles, as well as other payment processes. Given that there are many payment cycles to balance throughout the month(s) and year, such as payroll, investor’s profit shares, and even daily wages, working with an accountant can significantly streamline daily operations and enable employees to focus on other tasks.

8. Helps with credit building

People might not immediately think of businesses when it comes to credit building, but the truth is that maintaining a good financial reputation is incredibly important to success. Running a business requires a lot of money, especially when expanding operations or product lines comes into play. To secure funding for pricier moves, businesses often work with lenders or investors who are familiar with their industry. These potential lenders and investors will want proof of the business’s ability to pay back the debt just as they would with an individual.

An accountant is in the perfect position to help your business not only develop and maintain good credit, but also to ensure that the terms of any loans or other contracts with lenders and investors are honored in a timely manner.

9. Increases transparency

Transparency is important when it comes to business decisions, and that is true at nearly every level of the business in question. Workers will want to have accurate information about their employer’s finances before they accept new positions, while investors, stakeholders, and other invested parties will want to know that they are making decisions based on the whole picture, not just a small piece of the financial whole.

Transparency ensures that everyone involved in a business makes informed decisions about how to invest, whether it is financially or via their time. This, in turn, can help cement a business’s good reputation and attract even more investors or lenders in the future, thereby securing its financial well-being in the long term.

Accounting outlook

As you can see, accountants are critically important for businesses in many ways. They can help ensure that businesses are on track, for example, in terms of both the amount of money they are making as well as their overall financial soundness and reputation.

It might be a bit surprising to find out just how much accountants do for businesses, but the reality is that when it comes to business success, money is often the most important metric of all. Making money and keeping accurate books not only helps businesses in the short term to keep their finances in order so they can meet immediate needs such as paying their employees, but it also helps them to secure funding for future endeavors, which can often make or break them.

Given how crucial experienced accountants are in business, it might come as no surprise that the field is set to grow even further in the future. According to the U.S. Bureau of Labor Statistics, employment of auditors and accountants is poised to grow by about 6 percent by 2031, and accountants can earn a respectable wage even in unspecialized positions. General accountants make, on average, $77,000 annually, and the salary for experienced accountants in more niche business sectors can increase dramatically.

Are you ready to learn more about how you can break into accounting for your future career? Luckily, the process is not a confusing or complicated one.

How to become an accountant

Becoming an accountant with the education and professional background needed for a lucrative salary does not have to be a mystifying experience. Focus on expanding your education as far as possible to receive stable job offers with impressive payment. Don’t worry if the thought of returning to school full-time seems daunting; thanks to advancing technology and shifting attendance standards in a post-COVID world, online degrees are now more prevalent than ever.

Before you get started on a remote degree, however, it is important to choose an educator that has a history of successful graduates. Suffolk University, for example, is a well-respected institution offering an MBA accounting degree online. The university is a fixture of downtown Boston and has created a robust online educational system designed to allow everyone, even busy professionals on the go, the opportunity to expand their learning and improve their professional prospects.

Regardless of where you decide to attend school, make sure that you are opting for an accredited institution that has the ability to provide you with a first-class education, including experienced faculty, dedicated mentors, and a diverse student population. Do your own research before you sign up, and remember that you will be paying the bill in the future for your education today, so make sure what you receive is worth the price tag.

Financial professionals play a vital role in building a strong business, so the career prospects for those who pursue this field are excellent.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.