I’m trying to keep the books balanced for my local cafe. I need clarification on the terms above. Thanks!
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Hey Anon!
from what I know; Financial accounting refers to a codified set of standards by which accountants in various companies must handle records. These standards help to create uniformity and allow easier review by regulators and investors. Globally, the International Financial Reporting System (IFRS) is used by most countries. Business or managerial accounting, on the other hand, is accounting within business entities. These have no connection to regulatory standards but are rather used to project the company’s growth over time. Small businesses are in little need of business accounting while larger ones need them to create models and make decisions.
One of the major differences between both is their focus. Financial accounting has an outward focus and is done to meet regulatory expectations. Managerial accounting focuses on meeting the company’s goals by drawing plans. These different postures also mean that financial accounting focuses on past financial data while managerial predicts the future. Also, financial accounting requires a higher level of precision.
The first step is to create a bank account for your business. The importance of having separate accounts cannot be overstated. It makes you more likely to receive funding and protects your personal assets in case of audits or lawsuits. While opening an account, ensure you have varied options as charges for business accounts are higher than personal ones. You also need to have a business credit card and a business name for funding and registration purposes. Remember to have separate savings account for handling taxes.
Furthermore, you need to have a paper trail indicating all your business expenses. Keeping a log of receipts and the people who paid will help greatly when regulators call. Things like travel and the purpose of those trips should also be carefully logged. Having these will also help to track the growth of your business and the spendings it incurs.
Additionally, you need a solid bookkeeping system. Although bookkeeping varies from accounting in the sense that it is basic, it still helps to document transactions on a daily basis. You can either do this yourself with an Excel spreadsheet or other software or hire an affordable accountant to run it for you.
Simply put:
Financial Accounting is the accounting required to meet regulatory requirements.
Business Accounting is custom internal reporting on various business KPIs, which are the basis for business decisions.