What is the future of structured finance

Finance and accounting

Finance and accounting: the business basis for success

Whether a small company or a large international corporation: Finance and accounting is an absolute must. After all, the legislature already requires that annual financial statements be drawn up and published. But the importance of accounting goes far beyond that. In the internal part (controlling), the business basis for far-reaching, strategic decisions is made.

Only a sound financial foundation can enable companies to grow, open up new markets or change the products on offer.


What is finance and accounting?

The accounting is used for the systematic recording, monitoring and informational consolidation of payment flows in companies. These in turn come about through the performance process, for example the production of goods and their sale. In principle, accounting aims in two directions:

1. External:
Legislators require companies to disclose certain internal data. Annual financial statements including a balance sheet must be prepared once a year, which external stakeholders can use to assess the company's current financial situation.

2. Internal:
The accounting department provides important key figures and data internally. What is the current liquidity situation? Which departments cause which costs? What are the manufacturing costs of the various products? Do we have to include imputed costs in our calculations?

Accounting thus forms an important basis for almost all strategic decisions. In this way, particularly profitable products are revealed, disproportionately high costs can be seen in certain areas or the current liquidity is shown in detail.


Companies have to perform these tasks within the framework of finance and accounting

From a purely legal point of view, finance and accounting is a mixture of “must” and “can”. Only the external part really needs to be handled in order to comply with the legal requirements. To put it bluntly, the legislature does not care what happens in controlling. From a purely practical point of view, however, it is not possible to work economically without structured and software-supported controlling. The four areas of responsibility of accounting in detail:
 

  • Financial accounting (external accounting)
    Companies have to present their financial situation to the outside world. The company's asset, financial and earnings position is broken down into the balance sheet, income statement and cash flow statement. An appendix and a management report must also be prepared in the course of the annual financial statements, but these documents are not necessarily numerical. Bookkeeping forms the basis for successful annual financial statements.
     
  • Controlling (internal accounting)
    In controlling, companies deal with the planning, control and coordination of evaluated company processes. The aim here is to maximize the company's success. Management should make decisions on the basis of the objective information collected in this way. For this purpose, for example, the sources of the company's success are analyzed by cost and performance accounting and investment accounting. Imputed costs (interest, depreciation, rent) may also be used in internal accounting, for example for pricing, but are taboo in the external part.
     
  • statistics
    As part of business statistics and comparative calculations, companies carry out target / actual comparisons, for example. Inter-company comparisons of several locations are also used here in order to be able to measure the profitability of the individual companies.
     
  • Planning calculation
    The planning calculation is clearly forward-looking. Although it records current actual values, it also includes development scenarios for the future - using business methods. For example, companies can simulate expansion plans.


How does software or an ERP system help with finance and accounting?

Hardly any company today is likely to organize its accounting without a software solution. Are often used pure invoicing or accounting tools. On the basis of information from sales, for example, the accounting department can create invoices using a standardized template. These are then forwarded to the respective customer.

Important key figures are often collected manually as required. For example, if management wants to change production slightly, it checks how profitable the individual products are. The functions that modern ERP solutions offer in this area have been significantly expanded. In addition, the systems take a holistic approach: becoming automatic, correct and reliable All tasks of finance without the need for interfaces to third-party providers.