Overlooked and branded as dull, accounting is critical to the ongoing success and development of any business. We take a look at why accounting is so important and the pitfalls avoided by understanding it.

Accounting is the process of documenting and assessing financial activity. From these figures, an accountant and financial experts can make financial forecasts for the company such as profit warnings and tax liabilities.

Accurate financial recording and understanding are critical to the success of a company and this is why:

Accurately track income and expenditure

Cashflow is the lifeblood of any business, therefore, monitoring income and expenditure is essential.

But it is more than that: it is about understanding what a company is spending money on and why.

An accountant should also be asking questions about why money is being spent on certain items and look to achieve better overheads.

Income needs to flow regularly into a business thus an accountant will usually pass information to credit control where invoices and other payments to the company or organisation are outstanding.

Profit and loss

When income is more than expenditure, a business is in profit. When expenditure is more than income, the business posts a loss.

There are times when a company will be expecting a loss. For example, an investment programme may mean that as well as investing any loans the company has access to, they may also invest profits.

Running at a loss may not necessarily be a bad thing in the short term, as long as the value of the business’s assets is more than the loss being incurred.

An accountant is the person who monitors and manages loss, as well as determines whether assets hold the value that a company needs.

Tax liability

Tax is a complex subject, especially the bigger the company.

Likewise, when posting a profit, a company or business will incur a tax liability. An accountant is a financial expert who will ensure that a business meets its tax liabilities.

However, there are times when a business’ tax liability becomes so complex, that a tax specialist works alongside the accountant to keep the tax bill as low as possible.

Payroll

A business may have a small payroll that runs weekly or a large payroll that runs every month. Either way, it needs to be accurate!

It isn’t just about working out how much to pay individuals for hours worked. There are National Insurance contributions to calculate, as well as pension payments and so on.

Balance sheets

It is also part of the accountant’s role to have an accurate idea of the financial shape the business is in.

This is known as a balance sheet. A snapshot of the business, it lists everything from assets to debts, money owed to the business.

This balance – how much is left once liabilities (e.g. money owed) have been subtracted from assets – will give the net worth of the company.

There are numerous reasons why this balance sheet is important – it gives information to creditors, as well as stakeholders for example – and is something that an accountant is expected to deliver and understand too.

Become a qualified accountant

These are just a few of the roles and responsibilities that a business accountant would fill.

The demand for accountants is high. Qualified accountants can be employed by a company or can be self-employed, offering their services on a freelance basis to companies, businesses and organisations of all sizes.

As well as specialising within the field of accountancy, many accountants also specialise in certain areas of industry or in some sectors.

Accountants are qualified, professional people. Some will follow the degree route whilst other people work their way through various courses, including online accounting courses, to acquire the skill set that they need to be an accountant.

Is this the career for you?

Accountancy hasn’t always enjoyed a great reputation. Until recently, accountancy was seen as dull and boring.

Modern accounting is no longer figures in long columns. Accountants often have to be technically minded too, using relatively complex accounting software.

Accounting is critical to the success of any business. The more an accountant understands the financial shape of a company, the more accurate this financial information he or she has to work with, the more accurate the appreciation of the business will be.

To move a business forward, everyone on the management team needs to understand a range of complex financial issues, and you, as an accountant, could be the very person that explains the details.

May 2018 is Accounting Day, a chance for the exciting world of accounting and finance to attract new talent.

‘Doing the books’ may not be everyone’s idea of fun but accounting and accountancy involve people working in one of the most complex areas of business. With this in mind, take a fresh look at what accounting involves.

For too long, the world of accountancy and accountants has been portrayed as grey and boring which is somewhat surprising considering the importance of a knowledgeable person watching the cash flow, keeping an eye on the figures and keeping tax liability to a minimum.

Vital to the success of any business, no matter what size it is or what products or services it supplies, the world of accounting means accurate financial reporting, taxation, auditing, corporate finance, business recovery and insolvency in some cases too. Online accounting courses and qualifications can also lead into the murky world of fraud in the shape of forensic accounting.

Two main type of accountancy

In accounting, you can choose to specialise and thus, understanding the two broad bases of accountancy is the first step;

I.        Audit, assurance and advisory roles

This is a form of inspecting or checking a company’s or organisation’s financial reports for accuracy.

An audit or ‘being audited’ is a common phrase in business. It is not so much a one-off, occasional activity but one that is ongoing. For all businesses, including public bodies, charities, educational facilities and so on are subject to being checked financially. In other words, you will need up to date knowledge of complex financial laws and whether the body being audited is complying with these.

In an advisory role, you would look at the financial implications of expansions, mergers or investments that a company or organisation makes.

II.        Business recovery and insolvency specialist

In the UK, the recent recession and austerity measures have hit businesses hard with well-known high street names, mostly recently Maplin and Toy R Us, ‘going to the wall’. This means that the value of their debts outstrips assets, creating an insolvent trading position.

Once in receivership, the business recovery and insolvency specialists will take over the running of the company. They will try to sell as much stock and chattels as possible to recoup as much money as possible to pay the company debts. After this, they wind it up and the business will no longer trade.

For some businesses under financial strain, you would reorganise their finances and investments as part of your business recovery expertise.

III.        Corporate finance and risk management

Online accounting courses also look at how a business financially plans for the future. From investing in assets to managing financial risks, specialist accountants will be the driving force behind all of these important activities.

Investments need to be made in line with financial laws, notoriously complex but also within legal tax boundaries too.

IV.        Forensic accounting

Fraud happens. It can be a complicated trail of phoney accounts and transactions which, on the surface, look legitimate. But probe below the surface and a forensic accountant can uncover a fraud, the tentacles of which expand far and wide.

Do you have the ability to be a financial detective, analysing financial information, tracing trails and uncovering the tracks of who is involved in such complex crimes?

V.        Tax

Many see tax as a moral and ethical issue for businesses. Big names have come under closer scrutiny in recent years for the tax avoidance schemes they invest in, effectively denying the country’s coffers of millions of pounds. Although not illegal, many questions how ethical tax avoidance schemes are.

And yet, no business wants to pay more tax, effectively giving away its profits, than it needs to. As a tax specialist, you would work within the tax laws of the UK, notoriously complex, but with a view to minimising tax liabilities.

 

Accountancy never deserved the grey reputation it once had. Increasingly, it is seen as a fantastic career move, a role that offers diversity and challenge. Why not study online accountancy courses and see where they take you?