Accounting standards help set general accounting principles for business owners. How to track income and spending can mean many things to different business owners. The accounting standards are created by a governing accounting board to narrow that process to a couple of measures to assist with reporting and business compliance. First, the business owner needs to know accounting is regulated. Second, accounting is the heart of a business. The accounting standards in business are governed by accounting boards, federal and state regulations, tax laws and regulations, and common industry practices. As accountants, we help you navigate these standards and assist you with building your practices according to these standards.
Your accounting practices are systems that we use to perform accounting in a business. The output that each business owner needs for internal reporting varies, and the business owner has more control of this process. Compliance is for external reporting to your federal and state agencies and requires that we report certain information, during specific periods, in a certain way. The business owner does not have control of this process and must comply with the governing agency's guidelines.
Setting up our accounting processes help us with completing internal and external business needs. Most people think all I need to do is track money in and out for taxes. However, they later ask for more information like is a particular service working or how can I better budget? You cannot use your taxes to answer those questions, so many do not want to set up the processes it takes to run a profitable and sustainable business.
"Step out of the tax only mentality to grow your business."
Accounting standards do not limit you to the accounting practices you use in your business because they only set the framework. How I track and prove eligible business expenses is up to me, but I must complete this practice. How I collect that data is up to me, such as the accounting software I select to track my accounting information is not governed by standards. The accounting software provider must meet the accounting standards (the accounting requirements must be created and completed by your software provider).
Another accounting practice is how you track your receipts, and that is not an all or nothing process, nor is it governed by a board. The accounting standard and tax compliance are "Track Business Accounting Transactions." The standards tell us we need to track them. How you follow them is up to you. Some only purchase online and save the receipts on their devices. Others like folders for physical receipts (although the ink can fade), some take pictures and keep the receipt on their device, others learn to add it into their accounting software.
Hopefully, you can see there are different practices to complete a standard or requirement. We must learn not to throw the standard out the window. We cannot get rid of things we think are unnecessary to find later we miss valuable tax deductions or failed to maintain and increase profits because we did not complete all our accounting steps.
Written by Y. Michelle Coard, B.A.S. and A.A.S in Accounting, Accountant and Profit Strategist