What is Business Accounting?
An overview of business accounting and management accounting.
Business accounting and management accounting are more intuitive than general accounting. They consider aspects of running a business, like how to balance expenses with revenue, not just on paper but in real life.
In this article, we’ll provide some definitions of the different types of accounting, and how they are important for different business functions.
To get started, general accounting is what most people think of when they think “accounting”. It involves systematically collecting, analyzing, and reporting financial transactions for a business. It is also the process of reporting these transactions to tax authorities and oversight agencies.
But then what is business accounting?
Business accounting consists of three main tasks: identification, documentation, and communication of economic events. Accounting systematically records economic events such as transactions and investments using bookkeeping techniques. Occasionally, accountants also analyze and interpret financial statements and explain how they apply to reported data.
Accounting is the study of business financial information assessed by accountants in order to supply business owners with relevant information. The information is organized into reports which demonstrate the financial health of a business.
Construction company owners can use business accounting to meet compliance requirements and to make wise money choices when it comes to investing in their company.
Business accounting differs from “general accounting” or financial accounting in that it is focused on fulfilling the needs of a business rather than simply meeting external accounting standards. Business accounting typically relies on substantial projections and modeling exercises to assist managers in making decisions and evaluating performance.
Almost all larger companies incorporate some form of business accounting into their decision-making process. On the other side of the coin, smaller businesses don’t often employ business accounting, mainly because they lack the resources to do so.
What is the difference between business accounting and general accounting?
The difference between general accounting and business accounting is that business accounting (or managerial accounting) is focused on meeting internal business needs, while general accounting is focused on achieving external financial standards. Because general accounting focuses on reporting to external regulatory bodies for things like taxes, it is not so focused on the performance or strategy of the business itself, just the numbers which need reporting.
A related distinction between general and business accounting is that general accounting focuses on the overall finances of the organization, while business accounting usually focuses on one or two specific segments of a business.
Another important difference is that general accounting uses historical data exclusively, whereas business accounting usually concentrates on modeling and forecasting to help make better business decisions about the future.
Financial accounting requires that the data and results are accurate and verifiable, while business accounting involves making estimates and assessing trends that can be made in time for decision-making.
Can a business use both types of accounting?
To identify the needs of your business, you need to be aware of the difference between business accounting and general accounting.
If your company needs to follow financial standards with governing bodies like the IFRS, then you must invest more time and money into general accounting. If your company needs better strategies, modeling, and forecasting for future investments and business development, then a focus on business accounting would be more beneficial.
Of course, investing in both types of accounting is more beneficial, and you are more likely to be successful in your business.
Many business owners and managers are unaware of the dualities that the CPA role can provide. CPAs are qualified to provide general or financial accounting advice, ensuring your company adheres to regulatory and governing bodies. They are also able to act as financial advisors by using modeling and forecasting through tools like Dryrun.
When you think about it, this simply makes sense. Your accountant already has access to your books, why wouldn’t they provide analysis or forecasting since they are privy to the operations and numbers?
Business or managerial accounting seeks to discover, measure, analyze, interpret, and communicate financial information to managers in order to accomplish a business’s goals.
General or financial accounting is the process of recording, summarizing, and reporting the events resulting from transactions and economic activity over a period to the public or governing bodies like the IFRS.
Business accounting differs from general accounting because it is intended to assist managers and owners within a company to make well-informed business decisions based on financial models and forecasts.
In general accounting, reports tend to be aggregated, concise, and generalized. Information is simultaneously more transparent and less revealing. Business accounting is not usually like this since there are different reasons behind the forecasts and analysis for each company. For example, a construction company may analyze whether certain types of jobs are profitable and consider the effects of not doing those particular jobs anymore, if not.
Business accounting reports are generally complex, technical, and specific. Companies examine a lot of information that could seem pedantic or confusing to others who are not aware of the purpose.
Keep in mind that general accounting includes mostly quantitative analysis, internal auditing, income taxation practices, and methodologies. General accounting gives more attention to processes while managerial or business accounting is more abstract when it comes to providing advisory services and analytics.
If you are curious whether business accounting is right for your company, ask your accountant about Dryrun and their financial modeling/analysis services. Accountants are here to help your construction company succeed, and that includes providing all the options!
Remember, accounting is more powerful than just numbers on a spreadsheet and paying taxes!
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