For those who fear numbers, accounting can seem a little scary. But everyone involved in business management knows that accounting is the language of business; hence, an appreciation or at least a basic understanding of accounting is essential.
We asked Marco Ng, who has depth of experience in accounting, audit, financial and risk management, for some insights on why managers of different departments must know some financial accounting, too.
Understanding how those monies behave will give them an idea on how to obtain and save funds for operations and, at the same time, satisfy the demand for the return of funds from their sources, i.e. suppliers, trading partners or financial institutions and banks.
There is a saying that cash is king, and in any business, cash is necessary to jumpstart operations and expand it.
One special subsection of accounting that focuses on money maintenance is financial accounting. This is a practice of systematic maintenance of recording, monitoring and summarizing of sources of monies from any business.
In short, it is managing the money funds of the business.
Why do managers need to know about money funds?
As stated earlier, funds given to the business must be returned to their original source. Funds are returned to their source using two modes that must be accepted by the source, in cash or in kind. However, most funds can only be returned using cash.
For this to be satisfied by a business, its activities must be able to earn more sales compared to expenditures incurred in every business cycle, thus management of business activities must be able to generate such output. With managers cognizant of this need to eventually return funds, it is hoped that they will then be prudent in handling all day-to-day activities.