Hello Everyone,
This week I would like to start with the introduction to accounting subject and talk about the business objectives and accounting objectives under chapter 1. Please enjoy your reading as follows:-
Introduction
Many people working for a company have to deal with accounting matters either directly or indirectly. Accounting function can help you prevent damages if you understand the objective of the work and know how to use the information generated correctly. However accounting can also cause you additional burden and reduce your efficiency if you do not know how to deal with it properly.
The accounting subject is concerned with theories and principles that can be difficult to be absorbed by non-accountants. So many people have the feeling of boring before they can learn about its core knowledge. How to help people understand accounting in an enjoyable manner?
I have decided to write this ebook in a different approach. By explaining the accounting from the operational point of view may be easier to understand than starting from the theory. The content in each chapter is then designed to address practical issues generally found in businesses and how they are related to accounting matters.
This ebook is suitable for new learners of accounting. It is intended to provide basic knowledge about accounting and financial at work. Readers can understand the relationship between accounting function and others within an organization. And it also explains the impact of accounting system on the operational efficiency.
I hope that readers will find this ebook useful for their work and see how to use accounting knowledge to enhance the performance as appropriate.
Chapter 1 – Business Objectives VS Accounting Objectives
As a sales person, you are informed to make a commitment of 10% sales growth. This is the target that you have to achieve within the measuring period, say one year. It is very important that you have to make it. If you missed the target, you could be considered under performance. As you can see that the company needs to have sales growth. It is generally presumed that the higher the sales, the higher the profit. This may not be true. Because the profit happens only when total sales is higher than total cost as shown in the formula below.
Profit = Sales – Cost
That also means that loss happens when the cost is higher than sales. The business cannot continue its operation unless they can make profit. When you are in business, you need to make sure that you have sufficient resources to be used in executing your plans.
Profit is a source of additional cash for the company.
When the company sells products to customers, she would get the cash in return for the products sold or services rendered. The cash collected will be spent on acquiring finished products for next sales. The cash left is also paid to employees for their salaries, for other expenses incurred (such as transportation, supplies, rental, etc.), and for capital investment (such as buying machines or equipment). This cycle has to keep moving all the time.
It is the management’s responsibility to ascertain that they can get the cash through the profitable business they are doing.
There are many objectives companies can set up. Profit is one of them. To be successful in business, you need to understand the real meaning of profit, and know how to manage the business profitably. In order to measure the business’s performance systematically, accountants are assigned to do this job for the management.
Measuring the Operating Result
When we study at school, the way to measure our knowledge is normally done through the test or examination. You may get an A grade if you can do the test correctly. But you may not pass the examination if you are unable to get the minimum score required. In business, the success can be measured from several aspects. But only successful ones can exist and survive in the marketplace.
Why do you need to know the operating result?
Many companies run the businesses without knowing they are making loss. The management who see sales increase can end up with cash shortage once the customers delay payment or cannot settle the outstanding debt. Or the companies realize that they are going to realize that they are in trouble when they cannot pay the bills to suppliers.
As doing business is concerned with interactions both within and outside the organization, each employee has to be responsible for their work according to the job description. But more important than that is they have to do things with high efficiency. The business has to compete with others in terms of products, services and cost. Then they have to be strong enough to withstand the tensions and obstacles being faced.
As an individual, you can easily evaluate your financial status by checking the cash balance in your pocket or in your bank account. You can estimate your monthly income from monthly salary and other income you may have. Your spending may consist of food, housing rental, transportation, medical fee, and personal items. The cash received deducted by the cash spent gives you the net cash position. Some months you may have cash surplus while some months you may have cash shortage. In this case you need to use your cash saving in the past to fill out the gap. Measuring of income and expenses based on the cash movement is called “cash basis”. In general businesses do not measure the result on cash basis because they may have huge amount of undue collection and payment. So it is necessary to take into account these facts in determining the true picture of the business operating result. We called it “accrual basis”.
The Right Action Needs To Be Taken
Everyday you should ask yourself what problems or challenges you need to deal with. The business operating result will force you to take appropriate actions to maintain your competitiveness. It is important to make sure that you will take the right actions in time. Several companies fail not because they do not know their problems but it is because they just cannot take the right actions fast enough.
In order to feed you with required information on a timely basis, the company needs to invest in the system and people that will help facilitate the information requirements from different functions. You need to learn how to use the system to help you work better.
The profit and loss statement is an output from the accounting department. This will be discussed in more details in next chapters.
By Yanyong Thammatucharee
Email: yanyong.thammatucharee@gmail.com
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