In the business world it is fundamental for all business owners to understand the functions of accounting and finance as it relates to his business. For the small business owner accounting and finance is just as important to his day-to-day operations as it is to the CEO of a multi-million dollar corporation. Accounting and finance are the foundation to and the road map of the company's future. Without accounting and finance the business owner does not know where the company has been financially and will find it difficult to plan accurately for the future.
The purpose of accounting is to document the operations of the company. Accounting reflects the company's financial history thus; making accounting documents an essential tool in preparing for the company's future. The purpose of finance is to provide a plan for the future. The small business owner should use his finance knowledge in combination with his accounting documents to assist him in accurately forecasting the company's financial future. (McNamara)
In addition to accounting and finance knowledge, small business owners' should be able to generate financial statements from his accounting documents and analyze those statements to fully understand the current and future financial state of the business. The four main financial statements are balance sheets, income statements, cash flow statements, and statements of shareholders' equity. (na, Beginners')
The balance sheet reflects the company's assets and liabilities at a specific point in time. An income statement reflects how much money the company made as well as spent over a period of time. Cash flow statements show the exchange of assets between the company and other entities over a period of time. ...