The Accountant: Your Trusted Financial Advisor
As a team member in a dynamic business environment, accountants take on a highly visible profile. Accountants have a simple and elegant tool for getting a fix on a company’s financial status; it is called the Accounting Equation. This equation states that Assets = Liabilities + Owner’s Equity.
So how do you get these numbers to plug them into the Accounting Equation? They are derived from transactions.
Let’s start by defining a transaction as an event that affects the financial position of a business and can be reliably measured. One such example is financing that enters into the ledger as a transaction reflecting that the loan increases the company’s assets as well as the company’s liabilities by the same amount. The purchase of inventory is also entered as a transaction.
Given the number of transactions a business would have on a regular basis, various financial data is required to track revenues and expenses. This is why, and regardless of the size of the business, managers have come to rely on accountants for more than just tracking financial data. Accountants today are viewed as consultants, even partners who take part in the company’s success.
Take Nostalgic Warehouse, a start-up – “the accountant became closer to a business partner, although he was an external subcontractor”. The key contribution of the accountant was mainly to help the business owner develop a strategy to realize long-term business goals. However, in order to help the owner translate his goals into reality, the accountant had to rely on his communication skills as much as his accounting skills.
To reflect a company’s financial status, accounting transactions are distilled into summary reports such as:
- Income statement
- Statement of owner’s equity
- Balance sheet
- Statement of cash flows
Using these tools, owners can make important decisions related to the growth of their businesses. Whatever the size of the enterprise, the same basic financial statements provide valuable decision-making information. By offering managers a snapshot of a company’s performance, ranging from income to cash flow, summary reports are considered an indispensable tool for business management.
In a world that is constantly in flux, your trusted accountant remains the source of steady and reliable financial data that plugs into the accounting equation establishing your business financial status.