The Basics Of Accounting For Small Businesses

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A major aspect of owning a business is following certain standards set by your state legislature. Today, businesses have the obligation of accurately reporting their sales and finances. It is essential for businesses to file the correct report, tailored to your business, in order to succeed and keep track of your company’s finances. Furthermore, with regulations and laws set in place, it is important to know the standards that are set and to abide by them. A portion of business ethics is being transparent and allowing your reports to truthfully represent the financial position of your business. According to the article, “The Basics of Accounting for Small Businesses,” a financial report is an analysis of the financial data recorded in the…show more content…
Garcia explains that keeping track of inventory is significant due to the possibility of the food decaying. Inventory reports provide managers with measures to calculate the quantity of profitable food items. Garcia states that “restaurants operate on a fairly thin profit margin.” Therefore, it is important to make reports such as, the income statement and statement of cash flows to know whether the restaurant is making a profit and whether these profits are accrual or actual cash revenues. Another report that Garcia goes over is debt reports. Garcia discloses that much of the capital allocated for a restaurant is usually loans. She feels that it is important to calculate whether the restaurant is able to pay off its debts. Garcia presents that a superior strategy to examine whether the business is capable of paying off its liabilities is by calculating the current ratio. The current ratio is computed by dividing the amount of total liabilities by the amount of total assets (Garcia). There are certain regulations that come along with financial reporting. One of the guidelines used by Americans is the Generally Accepted Accounting Principles (GAAP), which are made by the Financial Accounting Standards Board (FASB). According to authors Harrison, Horngren, and Thomas, accounting is used to reveal information about a company to its investors, lenders, and creditors. They also convey that the information
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