Most entrepreneurs just want to get on with building their dream business, but in reality, almost every business decision an owner makes will have financial consequences. And without some knowledge of how your books and financial results might be impacted, it’s hard to make the right choices. That’s why finance and accounting for nonfinancial managers and business owners is critical. Today, we’ll take a deep dive into the key skills for management accountants so you know how to manage accounting for small business for long-term success.
1. Know the hows and whys of journal entries
While you don’t need to be a double-entry guru, being familiar with basic accounting concepts behind journal entries can help you understand your financial reports.
Journals are records of business transactions and they form the backbone of your accounting system. Records are used for financial reports and they also provide management accounting information for creating and managing value.
So what’s difficult about journals?
Well, sometimes you have to make accounting adjustments to recorded transactions.
When you pay a year’s worth of rent upfront, your monthly financial results might actually be distorted. When using accounting principles, you’ll be recording the entire amount as an expense in the month you paid it. As you’ll be using these premises for the whole year, you should instead create adjusting entries to spread the cost.
There are plenty of other reasons why you might make adjusting entries. But the point to remember is that accounting numbers don’t always mirror the business transactions that take place