Accounting is a subject many find intimidating, confusing and quite frankly boring; however, it is invaluable to business and personal finances. As more people struggle to save for retirement, launch online businesses, or look for ways to earn extra money, the need for understanding accounting principles grows. While there will always be room for financial planners and accountants, everyone should have a thorough understanding of their finances. Without the simplest understanding of accounting, you’ll have difficulty in running a business, trouble managing your banking transactions, deciphering investment reports, and never feel comfortable with the health of your financial portfolio.
Bookkeeping is an important function that keeps businesses running smoothly. Business owners must understand the differences between bookkeeping and accounting. Accounting is the whole system used for financial health while bookkeeping refers to the actual system used to track financial records. Every business owner should understand how their bookkeeping system works and keep track of data, even when delegating the job to others. Bookkeeping involves tracking financial records and statements. Bookkeepers prepare and file tax returns. Without fully understanding the systems in place, businesses set themselves at a disadvantage. Accounting is the force behind the bookkeeping and other systems that establish the controls and methods used to keep a business financially on track and accountable to investors, lenders, and managers.
The need for financial accuracy in business and personal finances is without question. Not only can errors lead to financial ruin, but there may be legal consequences to suffer. Our businesses and even personal lives become vulnerable when financial records and accounting is left solely to others. In order to protect your livelihood, profits and nest-egg, you must understand the financial transactions and records you encounter. Whether it’s reading your bank statement, going over stock reports or understanding bookkeeping to prepare tax returns, you need to understand the basics of accounting.
Accounting is important to both business and personal finances for several reasons. Don’t make the mistake of thinking accounting is a subject reserved solely for Certified Public Accountants (CPAs). Accounting directly impacts everyone from the corporate level to the full-time and part-time employee. Businesses must turn profits in order to pay employees. The accounting department implements strategies to ensure businesses remain profitable and have the money to pay workers. If a business uses faulty accounting methods and loses profitability, everyone suffers. While the employee might not be in a position to review a company’s accounting methods, they should remain aware of the company’s financial health. Sometimes just understanding the jargon used by accountants can keep you aware of situations.
Likewise, understanding your own personal finances can mean the difference between financial growth and ruin. Unfortunately, many people neglect their own personal finances until met with a catastrophe. Budgeting, financial planning, and accounting are tools needed to handle life’s major events with as little stress and difficulty as possible. Financial planning is imperative to a successful life and understanding accounting is paramount to keeping your finances on track. Handling banking information, budgeting for a family, buying a home, making investments, planning for retirement, dealing with business profits and losses, preparing tax documents, dealing with insurance and funeral, death and estate planning are important aspects of accounting that pertain to all. Accounting is a subject everyone needs to understand.
[Featured image by Freepik.com]
© Charisse Van Horn 2004-2016