Entrepreneurs, whether big or small, venture into the world of business for many reasons. A handful could choose to undertake entrepreneurship because it is what their hearts dictate. But it is a reality that many would like to engage in business because they are attracted by the idea of having large profits. It is, of course, useless to go into business and not get anything in return. This is called the law of life.
Making profits is not as easy as learning the alphabet. It could eat up hours and requires tedious labors. Office procedures often include encoding and filing or producing business forms that would make work much easier. But these are incidental when compared to the most important aspect of keeping the business afloat by keeping track of the flow of money.
One good way to know the goings-on of the business is to keep track of the revenues and, most especially, the expenses. To be able to do this, cost accounting is a necessity. Back in the days, cost accounting was all done manually. But with today’s technological advances (spelled computers), keeping the books of the company is a lot faster.
A computerized program in accounting could help in the creation of invoices and also in writing out checks. Other benefits include increase in efficiency (less human errors), easier analysis of the company’s financial standing and also the easy set up of payroll and processing of credit cards.
It is important to begin by hiring a good accountant. If you weren’t born with the characteristics of an expert bean counter, then it is necessary to go and look for one. A good accountant should have an eye for detail and be highly organized. Nowadays, since everything is processed through computers, an extensive background in computer programs is also a must.
Now that the accountant is in the office, the next most important step is to have a goal date for the cost accounting system to be assembled. Should you opt to use the fiscal year or the calendar year on your business? Start dates should be days when all the account balances are made available for financial calculation. These, in layman’s terms, mean the point of beginning. Make sure that there are no transactions or reports that do come before the start date. A good start date is often the end of each month.
As the start date is set, all transactions that transpire from the start date until the present date should be entered. The accounts payable, accounts receivables, liabilities from credit cards, bank accounts and even revenue and expense accounts are now known as the current account balance for the company. Also, fixed assets and other possible assets such as trademarks, patents or copyrights should also be considered. To be able to set up the balances for each of these aspects, it is crucial to know the beginning balances of each.
New businesses begin with zero balances but if your business has been going on for awhile and you want to improve on cost accounting, it is imperative to look up old records and to determine the start date (with the beginning balance already computed). When the beginning balances are all set, a chart of these accounts should be set up for easier access and management. There are now software programs on the market that take care of this (all that the accountant needs to do now is to enter amounts and do updates each time, often done monthly).
Reconciliation of all these amounts should not only be done by the company’s accountants but also from other external sources (which means that the company has to undergo auditing). The amounts from the company’s records should match the external sources computations. If they do not, then its time to find the errors and start correcting them. Look into all aspects the assets, liabilities, and the equity.
With all the balances set in place, the cost accounting system is ready to roll with just a little guidance. The entry of data and keeping track of all other financial reports would be much, much easier it may not be a breeze but it would definitely keep tax accountants a good, few miles away.