Wednesday, February 1, 2012

The Language of Business – Why You Need to Understand Accounting

imageThis article was written by Jim Chamberlain, SCORE Orange County Management Counselor

On January 31, SCORE presented a new workshop for entrepreneurs, managers and consultants who want to learn the basics of accounting. The purpose of the workshop is to familiarize individuals who want to achieve a fundamental understanding of the most important accounting concepts.

How does a business executive know whether his company is earning profits or incurring losses? How does management know whether the company is solvent or insolvent and whether it will be solvent, say, a month from today? More importantly, how does management know when they will achieve a sustainable cash flow position and when this will be accomplished? The answer to these questions in one word is accounting. Accounting provides the critical information for making business decisions which will enable management to guide the firm on a profitable and solvent course. What business decisions could be intelligently made without the use of accounting information? Examples would be difficult to find.

All business concerns large and small, in every kind of industry, find it necessary to record transactions and prepare periodic financial statements from accounting records. As a result of attending this workshop, you will learn how to “read” the numbers for the purpose of seeing potential threats to the business that might not be apparent to the owner. You will also learn the key performance measurements that will add value to the company.

Topics covered in this workshop include the accounting equation, accounting terms, bookkeeping vs. accounting, cost accounting, financial statement preparation, analysis, ratios, journals, debits and credits, ledgers, cash vs. accrual, depreciation methods, and budgeting.