Every year, your business expects several transactions that you must keep records of. Financial accounting helps your stakeholders make smart business decisions. It gives you a clear picture of your company’s financial position. An experienced accountant in East Brunswick, NJ can tell you whether or not your business is making money, your cash flow, and the current value of the assets and liabilities of your organization. Keep reading to know why you need financial accounting:
Maintain Financial Transactions
Your business must keep detailed records of all transactions it makes. When an accountant records transactions, they adopt a double-entry system, making two entries for every transaction.
Budget and Plan
The resources your small business may have for funding its operations may be limited. You must budget and plan to properly anticipate the resources your business would need. To budget and plan properly, you must look into past financial transaction records. Financial accounting helps you plan and allocate resources appropriately.
Obtain Additional Funding
Whenever banks issue loans, they require your financial statements to know the capacity of your company to repay the loan. They ensure you have repaid past loans promptly. Also, they consider your company’s assets to liabilities ratio before giving loans.
Meanwhile, investors examine the business your organization is in, your business’s profitability, your competitors, the previous earnings of the company, and the status of your company’s market stock. With financial accounting, the process of taking out loans and investments becomes easier.
Make Informed Decisions
Your financial accounting records help you make decisions in all aspects of your business. Each management level uses related financial data for making decisions such as determining the most cost-effective supplier. Also, you can use financial accounting reports for making major decisions like expanding your business operations to another location. Through accurate reporting, you can easily avoid mismanagement and losses.
Fulfill Tax Obligations
When your books of accounts are properly maintained, you can easily pay your taxes. This is because all transactions, including bills, are recorded and stored in one place. You don’t have to correct anything at the last minute.
Plan for the Future
Through financial statements, you know where your organization stands when it comes to profitability. For instance, surplus accounts and reserves tell you the amount of funds available within your company. With this, you know where your business has enough funds for expansion or diversification. Thus, financial accounting helps you make decisions for your company’s future.