Accounting is the process of recording financial transactions pertaining to a business. The financial statements used in accounting are a summary of financial transactions over an accounting period, summarizing a company\'s operations, financial position and cash flows.

The different types of accounting

Financial accounting

Every year, your company will generate financial statements that people outside of your company—people like investors, lenders, government agencies, auditors, potential buyers, etc.—can use to learn more about your company’s financial health.

Preparing the company’s annual financial statements this way is called financial accounting.

Tax accounting

When your tax accountant provides you with recommendations for how to get the most out of your tax return, that’s tax accounting.

Cost accounting

You’re doing cost accounting whenever you’re trying to figure out how to increase your margin, or deciding if raising prices is a good idea.

Cost accounting involves analyzing all of the costs associated with producing an output (whether it be a physical product or service) in order to make better decisions about pricing, spending and inventory.

Credit accounting

Credit accounting involves analyzing all of a company’s unpaid bills and liabilities and making sure that a company’s cash isn’t constantly tied up in paying for them.

Credit accounting can be one of the most difficult kinds of accounting to do well because it usually involves telling someone something they don’t want to hear (like your accountant telling you that you should be borrowing less.)

Why accounting matters for your small business

Accounting helps you plan for growth

When you’re planning your company’s growth, it’s essential to set goals. What should your profits look like one year from now?

Financial statements let you properly assess how quickly your business is developing. Without accurate financial statements, it will be difficult to have a clear picture of your business performance.

Up-to-date financial statements demonstrate where your company stands. They’re essential if you want to fund your small business with a loan.

You need accounting to get investors or sell your business

You may not be planning to court investors or sell your business right now. But it’s a good idea to be always ready. And the best way to do that is to put a proper accounting system. Potential investors or buyers will expect accounting records that prove your business is profitable and on-track for growth. 

Accounting saves you from fines

As your business grows, it can be difficult to keep track of all your tax information reporting obligations. What’s more, if there are mistakes in your financial reports, you run the risk of misreporting your income.  Accurate accounting gives you complete, accurate financial records, which reduces your risk of breaking tax laws. And, when you have an accountant filing your taxes for you, you can be sure they’ll be done accurately and on time.

Accounting helps you pay the right amount of taxes (and not a dollar more)

If you don’t pay your full tax bill, the ATO will fine you.You can tell you’re paying too much in taxes if your business is consistently receiving large tax refunds.

Refunds are often the result of miscalculated quarterly estimated tax payments. To calculated tax payments accurately, you need to predict your income. It’s almost impossible to do so without accurate financial records produced through accurate accounting.

Hence accounting plays a vital role inside as well as outside your business. It is always best to maintain accurate accounting with the help of professional accountants. Accountant Perth is your catch if you\'re looking for accounting services around Perth and nearby areas.