3 Accounting Principles To Ensure Success For Your Company

3 Accounting Concepts That Every Founder Of a New Business Should Know

Startup founders will be able to better manage their projects and make decisions that will help the company grow and succeed in the long run if they know some basic accounting principles.

Finance and accounting may be worrisome for people who do not know much about them, but as the founder of an early-stage startup, you do not need to know much about them. At first, your project will be very simple, which means that you will be able to make good financial decisions if you know some accounting concepts.

Learn the basics and talk to experts about the parts you don't understand. When your business grows and finances become more complex, you should be able to hire a CFO to handle that part of your business. Until you get to that point, here are three top accounting ideas that will help you feel more comfortable. greater when dealing with financial affairs.

Accrual Accounting

Accrual accounting is a way to keep track of income and expenses based on when they were done instead of when cash was received.

For example, if you provided a service to a customer in February but didn't get paid until April and you had an expense for the same service that you will pay in May, here is the accounting The accrual basis is the recording of revenues and expenses in February, when the actual value arose.

This is of course important because the payment date can hypothetically alter performance because, using the same example, if you counted transactions in the months in which they occurred, it would appear that you made more money in April or made higher profits in February, Your expenses will increase in May, and if your business has multiple projects, it may be difficult to keep track of everything, and your finances may seem more unstable than they actually are.

Accrual accounting helps you see when and how you made the most money for your business without letting dates skew your financial performance.

Cash Flow

Simply put, cash flow is the movement of cash inside and outside the company, and it can be positive or negative.

Therefore, it is concerned with the dates of transactions and not with the period in which the service was provided.

Positive cash flow means that the company has more cash coming in from outside (increasing its cash flow), while negative cash flow means the opposite. Knowing the company's cash flow situation is crucial because it determines the company's ability to meet its financial obligations.

If accounting on an accrual basis makes sure that your company is profitable and how to reach the value, then the cash flow statements ensure proper financial planning to overcome the negative periods of the company, how to properly cover your expenses, and whether you need to obtain financing or not.

Financial Statements

Financial statements are records or financial statements, and these companies' financial statements contain a summary of all the company's financial operations, which explains the company's financial position at a specific time of the year. These financial statements include the company's budget, profits, cash flows, financial obligations, and other information. 

The presence of the company's financial statements has become one of the necessities that help its success and growth, as the disadvantages of the lack of financial statements are that the company loses its identity, it is easy for it to be exposed to embezzlement due to the lack of financial auditing, and its owners are unable to provide a fair assessment of the company's performance and employees. We see its importance to you as a small business owner in the following :

It helps to clarify and follow up on the data that contributes to predicting the size of the risks that may affect the cash flows. It also contributes to the development of plans and strategies that help in the event of crises. It forms the basic pattern of thinking when making decisions and estimating the weaknesses and strengths of the company by recording accurate information.

Summary

3 Accounting concepts that will ensure your success and distinction

Last Update: Feb 8, 2023 / 02:56 PM

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