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 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 financial history thus; making accounting documents an essential tool
in preparing for the company 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 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 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
