Why should a technical manager comprehend accounting functions?
Answer that question with some other questions and you may understand.
How is your department?
- Listed within the ledger books?
- If you’re a groundwork manager, is your operation listed as overhead?
- does one receive a good share of the budget or should your department receive more money?
- If you knew more about company revenue and expenses, could you increase allocations to your department?
- does one know the way the budget is distributed to departments, i.e., what criteria determine who gets what?
If you can not answer these questions, you will want to find out more about your company’s accounting function. In Chapter 4, we covered finance. Recall that a financial manager makes many investment decisions relevant to the continuation and growth of a firm supported information he receives from accounting or another in-house source.
The accounting department tracks inflows and outflows of cash through the corporate and maintains records of its sources and uses, that is, how it came in and the way it went out. In brief, the financial manager decides or advises on a way to spend the money; the accounting department keeps records of it. That admittedly oversimplified description is appropriate for our use now.
Accounting and Bookkeeping
Bookkeeping is that the process of systematically recording basic accounting data like revenues from the sales of products and expenses from operations like rents, wages, cost of products sold, and more. In essence, bookkeeping is that the recording of cash coming in and going out. The function of accounting is to keep up financial information and make it readily available to management to be used in making financial decisions. Accounting principles determine which transactions are recorded where. Accountants prepare financial statements for managers who evaluate them and use the info to create decisions.
Sales forecasts (see Chapter 3) determine budgets. The forecasts result from the combined efforts of the sales and marketing departments.
Think about it with reference to your personal financial planning. If you want to require a chic vacation next year, you need to “forecast” your anticipated income between now then. Will you get a raise? Will you get a bonus? Will you continue to have a job? supported what you suspect about your current job, you’ll estimate your next year’s income and then you may determine whether you’ll incur the expense of the exotic vacation. You follow this process for any major expenditure like a new car or college for your children.
The forecasting principle also applies to business. to work out what you’ll be able to spend on projects you would like to implement next year, you must anticipate your income (in this case the exploit sales revenue allocated to your department). The sales forecast is that the basis for the budget.
The accounting group tracks actual cash inflows and outflows. The financial manager determines how revenue are invested to make sure sufficient cash receipts within the future.
Accounting provides information on the firm’s economic condition to various interested groups:
- The management of the firm
- The company’s stockholders and therefore the general public (if it’s a public corporation)
- the interior Revenue Service
Information made available to the general public is within the style of an annual report. Large corporations usually prepare elaborate annual reports and also make them available on company websites. the aim of an annual report is to let the general public comprehend the company’s performance and stimulate investment by convincing the final public to buy the company’s stock. A letter from the chairman of the board or president of the corporate included in an annual report will reflect the philosophy of the corporate. Before you read that, communicate the auditor’s statement. An auditor is an independent reviewer, usually an accounting firm, hired by the corporate to audit the books and verify their accuracy in accordance with generally accepted accounting principles.
If a note to the auditor’s statement indicates that the firm has not confirmed the accuracy of the info, don’t waste some time reading further. If the audit firm confirms the info, you will want to review
the remainder of the report.
Whenever a corporation includes a bad year supported actions of the president, chief military officer, and/or chairman, the report will include an announcement like, “Due to international monetary fluctuations and our international investment in XX…, etc.” you’ll not see an admission that, “We fouled up by making some wrong decisions and we’ll attempt to do better next year.” Some company executives are honest about errors in judgment and a few play the “blame game,” taking credit for progress and blaming others for setbacks.
(More are said about company executives in Chapter 14.) You will, however, find accurate information within the financial reports included in an annual report. you’ll be able to review financial trends related to income, profits, expenses, and far more. Careful reading of an annual report will tell you where a corporation has been and where it’s going.
In case of a privately held company, only the owners and also the Internal Revenue Service see the financial data. The owner of a privately held company has no requirement to create financial data public.
One exception is that an executive hired by an owner may have access to financial data so as to form prudent business decisions. If a privately held company seeks a loan from a establishment, the bank or other entity will want to review financial data to guage the risk related to a loan.