Accounting concepts and applications

Accounting Information and Insights Into Business Operations

Accounting and financial information is the most critical information asset any enterprise has. The ability to seize opportunities and mitigate risks is directly related to how well an organization uses the accounting and financial management systems (Hall, 2010). Of the many questions an owner of a company would be able to answer with accounting and financial information system, the two most critical are how much revenues are being generated during a specific time and at what cost, and what the cost per unit to produce a given product are.

Two Most Strategic Questions Accounting and Financial Systems Answer

The most critical question any business owners needs to ask is how much the revenues they are producing are costing them. The cost of sales and cost of revenues are the most critical and difficult to manage aspects of a business

(Jansen, 2011). This is because a very large proportion of these costs are variable and therefore change in direct proportion to the production levels of a business (Hall, 2010). Finding the answer to this question will also provide a business owner with insights into which areas of the business are performing well, and which aren't. Having that level of insight into each cost component that drives the total cost of sale will also give the business owner a very clear idea of how their pricing is performing in the market. In short, knowing the cost of revenues can liberate a business owner to find continual strategies to improve and grow their profitability and sales while reducing the variable areas of costs that often are out of control (Hall, 2010). Being able to answer the first question of how much revenues are costing to produce provides a business owner with a rich set of insights into how their business is performing and what steps can be taken to immediately improve it.

The second question is the cost per unit to produce a given product or deliver specific service. Just as the total cost of revenues for a business, this figure will also provide a business owner with insights into how their business is operating, from the supply chain through pricing and distribution of gross margin assumptions (Hall, 2010). The cost per unit to produce is also a good measure of how well the efficiency of a given company is running at. Often a business owner will evaluate these from the standpoint over the long-term, looking for trends in hwo their business is operating at an efficiency level that makes the entire company profitable. For services business, the cost per service event or services deliver (as a plumber making a house call) needs to have a minimum charge level as costs are allocated across all forecasted calls in a given month. This is critically important for a business owner to see over the long-term in order to manage both costs and processes that contribute to their delivering a product or service.