Financing Your Organization

This chapter explains the importance of using an accounting system, which will be especially important if you are interested in becoming an auditor.


In this chapter we discussed the importance of having a well-designed accounting system for your organization as well as the distinction between financial and managerial accounting. While both financial and managerial accounting statements and reports are required and important, managerial accounting statements and reports are more likely to contain the kinds of information you will need to help manage the operations of your organization.

We explained the six different types of accounts, their characteristics, and how they are used to create a detailed chart of accounts which is tailored to the specific needs of your organization. Next we covered the advantages of the system of double-entry bookkeeping and how, together with ledgers and other accounting records, it enhances the accuracy of information maintained in an accounting system, whether it is manual or computer-based.

Next, since the cost of computers and software has dropped to the point where even many small organizations can afford them, we covered some of the accounting software packages that are available, their costs, criteria for selection, and the advantages of using them.

Finally, we discussed the common options for obtaining funds for your start-up organization, some of the pros and cons of each, and the advantage you will have in approaching lenders or investors with accounting reports that demonstrate a clear path to profitability.

Discussion questions

  • Explain the difference between financial accounting and managerial accounting. Which one is most important to owner/managers of a start-up organization and why?
  • List and give examples of the six basic types of accounts. What are the characteristics of each?
  • Why is it important to have a chart of accounts that is tailored to particular types of organizations rather than one chart of accounts that applies to all types of organizations?
  • Where can you find sample charts of accounts that apply to your type of organization?
  • Explain the advantages of double-entry bookkeeping. Do you agree with Goethe's description of double-entry bookkeeping as Goethe as "one of the most beautiful discoveries of the human spirit"?
  • Please discuss the advantages and disadvantages of using computer software packages for your accounting system.
  • What sort of difficulty can you imagine the manager of an organization would be in if the organization did not routinely prepare cash flow forecasts and working capital analyses?
  • Why is it important for managers to understand the concept of a break-even point?
  • Please give examples of how information from a customer profitability report could be used?
  • Why is it important for an organization to prepare and use a budget (or financial plan)?
  • Please give examples of alternative scenarios an organization should prepare and how they might be used.