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An Accounting Overview for Non-Accountants

Written by: Wayne Label

Article Overview: Whether you are a small business owner or a CEO of a multinational corporation, at the end of the month, quarter or a fiscal year, you have dealt with accounting records and financial statements. This article is for non-accountants, who try to understand what is accounting all about and how one can use it to make better business decisions.

An Accounting Overview for Non-Accountants

DISCOVERING ACCOUNTING

Whether you are a small business owner or a CEO of a multinational corporation, at the end of the month, quarter or a fiscal year, you have dealt with accounting records and financial statements. This article is for non-accountants, who try to understand what is accounting all about and how one can use it to make better business decisions.

To understand this book, you don't have to have an accounting education. It explains in a very simple language, how one can benefit from learning basic principles of accounting.

The main purpose of accounting profession is to provide fair and accurate description of business activity, which will be used by the management to make better decisions. As all other disciplines, it has its own rules and regulations that have to be followed.

Accounting should not be confused with bookkeeping (although it is a part of accounting profession). Bookkeepers record daily business activities in accounting software. Accountants on the other hand, summarize the data in the form of the financial statements and analyze the business performance.

As you can probably guess, accounting is used in all business aspects. Most of the managers have familiarized themselves with the accounting courses']);"> basic accounting courses in order to be able to read the financial statements.

Financial statements are one of the most important tools used by the management, regulators and investors today. They are designed according to the rules, called Generally Accepted Accounting Principles (GAAP). Rules are found in the literature of several regulatory bodies, such as: American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), Internal Revenue Service (IRS), and the Securities and Exchange Commission (SEC).

There are four basic financial statements. Balance sheet; shows assets owned by the company and its liabilities (items owed to others). Income statement-list of revenues less expenses, to arrive at net income. Cash flow statement-a detailed cash activity report and finally, the statement of retained earnings; it shows changes in retained earnings. Net income increases retained earnings and net loss decreases it.

Now that you know what accounting is, let's discuss the ways businesses present their financial information. There are three entity types: proprietorships-single owner, partnerships-two or more owners and corporations-one or more stockholders. Proprietorships generally are shops and other small establishments owned by a single individual. Partnerships are generally small to mid size firms, but in the case of law and accounting firms, they might be big multinational organizations. Corporations on the other hand are owned by the stockholders. One can become a partial owner of a corporation by simply buying company stock. In partnerships and corporations, owners usually do not have managerial responsibilities. One thing that all of them have in common is that, financial records of the owners and the company are maintained separately and can never be mixed with one another.

After reading this article, I hope you understand what accounting is, how it is used and what are some of the most important accounting tools that managers and small business owners can use to make better decisions. You can learn more about these concepts and blog with Dr. Wayne Label, CPA on his webstie or by emailing him.

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Article Tags: Accounting, Accounting for NonAccountants, Basic Accounting Course, Business Accounting, Financial Statements, Learn Basic Accounting, Learn Basis Accounting, Small



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