Accountancy forms the backbone of all organisations, whether they are short term projects or social enterprises.
Ethical and professional accounting forms a clear financial image of an organisation, and allows managers to make informed decisions, keeps committees abreast of developments in any activity, and aids keeping the operation viable. It is also one of the oldest professions; organisations have been practicing accounting for thousands of years.
Accountancy is giving an account for all your operational transactions and this you can only do if it is done correctly and regularly – as in weekly or monthly. By managing your books (Accountancy) you will be able to determine whether the extra pounds in your bank account are due to actual earnings or if it the money should be ringfenced for spending elsewhere.
If your books are up to date, you will always know when any payments are due and when you can expect payment from any clients, or service provision. You will more easily be able to determine whether you can afford to buy additional equipment and whether it is viable to hire additional staff.
A quick calculation and perusal of a set of payment figures might show that although your customer base is growing, it does not necessarily mean an increase in revenue coming in – your overheads – expenses such as delivery costs, overheads, salaries – could be increasing at a more rapid rate.
Managers can then decide how to increase the revenue levels, and reduce the costs of the operation with more confidence. This may be by focusing on the more cost effective activity, for instance.
With Accountancy, it is important to know which business transactions qualify as an asset, liability, expense or income.
There follows a brief explanation of each of these types of accounts:-
An asset is an item of value, owned by a person who is able to prove purchase of that asset.
Delivery vehicles, furniture, computers, factory and in the case of a restaurant, for example, kitchen equipment such as the two microwaves, stove and refrigerator are assets; fixed assets.
Cash in the bank (if not in overdraft), petty cash (used to buy small items such as stamps) and amounts owing by your customers are assets – current assets.
Current assets are assets that can change considerably in value, whereas fixed assets are items of fixed value that depreciate over a certain period.
Liabilities include any amount owing to another project or organisation. The creditors/vendors that you buy your supplies from are a liability.
The total of all revenue and grants constitutes income. Any other income, such as rent and interest earned is regarded as income – money/funds coming in from daily operational activity.
This is the opposite to income – expenses represent the amount of money/funds going out during the course of the normal daily business. Expenses include travel, entertainment, delivery charges, print and stationery costs and a number of other monthly expenses that do not include stock/inventory expenses.
Accountancy is not dead and boring – it breathes life into any operation – no enterprise can survive without the presence of an orderly and dedicated method that enables you to write down each operational transaction during a specific period of time – whether it is daily, weekly or monthly.