As a manager, you will usually be expected to understand simple financial reports and communicate effectively with financial people in your own organization. You may also be asked to contribute financial data about your own business unit. The basic principles of accounting are best understood by considering some simple businesses and how they might document their accounting and finance terminology pdf activities.
Accrual accounting is considered to be the standard accounting practice for most organizations, and is mandated for organizations of any real size. It provides a more accurate financial picture, but is more difficult to administer. Terms like ‘revenue,’ ‘expenses,’ ‘gross profit,’ ‘depreciation,’ ‘bad debt,’ and ‘fixed assets’ have precise definitions when used in business accounting.
You need to understand exactly what is meant by accounting terms like these. Revenue is something that is generated by the business in exchange for goods or services. It does not include things like bank loans or overdraft facilities.
Any payment for a service or product in advance of any work being performed is a ‘receipt. The matching principle aims to minimize any mismatch in timing between when an organization incurs costs and when it realizes any associated revenue. An income statement is an accounting of revenue, expenses, and profit for a given period.
This can also be an internal document that can be used to make management decisions about almost any activity where you have a record of the money spent and the associated return. Like any manager, my focus was on getting the best out of my team and improving the bottom-line of the company.
As a result, I was constantly devising strategies and plans to enhance productivity and commitment. I was never one for finance. My aim was to make my team the best in the organization. Yet, at my position, I could no longer ignore the importance of accounting statements of the company.
The people in finance kept trying to explain what the statements showed but I didn’t learn too much from them. For a non-accounting person like me, this is something very important.