Describe the

ACCOUNTING AS A TOOL OF BUSINESS

ACCOUNTING IS THE PROCESS OF RECORDING AND REPORTING A COMPANY’S FINANCIAL INFORMATION. SMALL BUSINESSES OFTEN USE ACCOUNTING TO DETERMINE HOW WELL THEY ARE GENERATING PROFIT COMPARED TO THE AMOUNT OF MONEY SPENT ON BUSINESS INPUTS OR RESOURCES

ALTHOUGH MANY SMALL BUSINESS OWNERS DO NOT HAVE A WIDE RANGE OF ACCOUNTING EXPERIENCE, THEY MAY BE ABLE TO LEARN ACCOUNTING THROUGH INFORMAL EDUCATION PROCESSES OR HIRE A PROFESSIONAL ACCOUNTANT TO COMPLETE THIS FUNCTION.

ACCOUNTING ALSO PROVIDES SEVERAL TOOLS SMALL BUSINESSES CAN USE FOR MANAGING THEIR FINANCIAL OPERATIONS.

BUDGETS

• BUDGETS REPRESENT A WRITTEN GUIDELINE FOR HOW MUCH MONEY SMALL BUSINESS OWNERS EXPECT TO SPEND ON VARIOUS ECONOMIC RESOURCES OR BUSINESS FUNCTIONS.

COST ALLOCATION ANALYSIS

• Cost allocation analysis is a management accounting function used to determine how a small business allocates specific costs to its goods or services.

FINANCIAL STATEMENTS

• Financial statements are the primary result of accounting.
• The income statement, balance sheet and statement of cash flows are three financial reports small business owners can use to determine how well their business is operating.

FORECASTING

• Forecasting is a detailed and sometimes complex accounting tool small businesses can use to determine potential sales in the current economic market.
• Forecasting may be completed by reviewing the small business’ previous sales history, target market or demographic information released by the Small Business Administration (SBA) or reviewing how many competitors are in the current business industry.

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