Generally, I’ve found that accounting is not biblical scriptures, but its principles needs to be aligned. Most accounting practices can be fairly standard, but some that perhaps require more thought (based on past experience) are:
- Cost of Goods - what goes into it, what doesnt (especially on material and manhours, and on unit costs)
- R&D Capitalisation - Unclear if capitalising too much is a good thing in the long run. There needs to be clarity on actual numbers as opposed to hiding. More broadly expenses vs capitalisation
- Inventory management and accounting
- Amortisation duration
- (Placeholder for future)
Rough Notes
Taken from super raw notes from an SME accounting Course. May not be wholly accurate, but hey, I’m not an accountant, and just need to know the minimum
What comes in: Share capital (from owner), Loan capital (from others), Reserves
What comes out: Fixed assets, Working capital (WC), Investments
On the role of Working Captial, is the investments / capital injection on running the biz before receipt of payment from customer. This tends to be tied up. Materials, Labour for production, Overheads. Net working capital is difference between current liabilities and current assets
On the role of Profit: For tax, For shareholders, For dividend, Reserves
Assets for inventory should include production costs, excluding Overheads.
P&l is financial history Balance sheet is financial snapshot of where money is today. Cash flow can help with forecasts
For future: may need some notes on Financing and Valuation.