One of the biggest mistakes small and medium-sized business owners make is confusing math for accounting. Accounting isn't simply debits, credits, and GAAP. Math is to accounting what letters are to a book. Quite literally, in fact. Just as letters are arranged to tell a story your bookkeeping and accounting comes together to tell the story of your business.
It's Your Story
Will it be a romantic novel or a thriller? If you have never considered it before, then the idea that your business has its own plot may seem foreign. However, over time, every business develops its own story - a history and future that can be narrated and understood by others. When was your business born? When has it struggled? Who has it met and what did it buy, sell or trade? What does it own? What has it gained and lost? Your business's accounting records record its past, where it is today and what is in store for the future.
While we as humans tell stories in words, your business tells its story in accounting. More than just math, accounting is the language used to record and interpret a financial story. When you make an entry in your books, you are recording events and integrating them into your financial story. What does the following tell you?
Debit | Credit
100.00 Contract Labor - Jane Doe
100.00 Checking Account #5555555
The entry explains that a contractor named Jane Doe was paid $100.00 as a subcontractor using the checking account. This is an event that has been recorded in the journal using the accounting language.
The Accounting Language
Much like any other language, accounting relies on a variety of symbols and concepts to record an idea or event. English, for instance, relies on other languages such as Latin, Spanish, and French and on many different symbols and rules, including:
These are all integral parts of the English language. Anyone intent on correctly writing or interpreting a book written in English would need to know how to correctly use these parts of the language to be successful.
Accounting is a hybrid language that borrows from other languages to tell its story. Anyone keeping the financial records for a company or interpreting them must have a sufficient understanding of a variety of related subjects like these to interpret financial data:
Categories & Subcategories
A Reliable Narrator
Maintaining a register is much like journaling – a regular and recurring record of activities. However, unlike a personal journal, your accounts are meant to provide an official record of your business that may be read and interpreted by others. An auditor, regulator, banker, or a financial planner may need to understand the financial story of your business. In order to understand where your business has been, where it is today, and where it is going an accurate story must be told. If your books don't tell the whole story, or the story can't be understood, users of the data will not draw the right conclusions leading to big problems for you and your business.
If your books aren't telling the whole story, you're missing out on more than just a few side-plots. When you slide transactions into the story without receipts or incorrectly expense off the books payments to a contractor you're causing ripples that may haunt you down the road. Not to mention - paying a professional to untangle your books after someone else has filled them with literary nonsense can be a painfully expensive lesson.
While most business owners are perfectly capable of keeping a checkbook ledger, writing a reliable and accurate accounting narrative requires a higher level of fluency in the accounting language. After all, Accounting is considered a professional field - CPAs undergo in-depth and constant training to keep abreast of changes in the rules that are involved in writing and interpreting financial records.
As a business owner, it can be difficult to trust your financial records to someone else. Unless you have or are willing to gain a functional level of fluency in the language of accounting and tax you may not be doing your business or your self any favors by going it alone.
Financial Clarity Group is here to help. While our highly skilled and efficient bookkeepers will help you record history, our tax planners will help you write it. They will help you stop wasting money paying more tax dollars than required.