WHAT IS ACCOUNTING
Accounting is the process through which a business records their financial transactions.
WHAT IS THE PROCESS OF ACCOUNTING
The process of accounting includes retrieving, summarizing, storing and sorting. The results are presented in reports and analysis. The term accounting also applies to the profession and field of study that is dedicated to financial transactions. There are several fields of accounting including financial accounting, and management accounting. Financial accounting is about presenting financial data as general-purpose financial statements which are then distributed to others outside the company. Management accounting is a branch of accounting that is focused solely on providing financial information to the management of a company in an effort to keep the company financially solid.
IS ACCOUNTING IMPORTANT FOR BUSINESS
Since accounting is an important aspect of a business, it is usually handled by a professional in the field, either a bookkeeper or an accountant. Large companies have an entire department dedicated to accounting with a large number of accountants. Such a department keeps track of the company’s financial matters including salaries, expenditure, and filing taxes for the company. The statements made by the accountants provide a summary of the financial transactions and cash flow over a period of time. They are thorough and comb through the thousands of transactions that take place in the company to make the summary.
If one has a small company or need their basic accounting functions handled, they can get a bookkeeper to take care of it. There is software dedicated to bookkeeping. They enter the financial transactions on the software. They input the records on vouchers, cash and checks which they receive from the company or individual. They are in charge of producing balance sheets and the total costs. Before handing over the data to the company or individual, book keepers have to check the information for accuracy. If they discover any discrepancy, they should report to management for further examination.
DO COMPANIES RELY ON ACCOUNTING
Large companies rely on accountants or a whole accounting department for their accounting needs. These are Certified Public Accountants (CPAs) or Certified Management Accountants (CMA) who take charge of the more advanced tasks in accounting. Different countries have different designations of professional accountants. For instance, Canada has Chartered Accountants, Certified General Accountants and Certified Management Accountants. The three are under Chartered Professional Accountants.
There is a set of standards that CPAs follow when they are preparing financial documents. These re referred to as the General accepting accounting Principles (GAAP). This ensures that there is consistency and comparability in all industries. According to the GAAP standards, all transactions should be entered two times as a debit and credit in separate accounting ledgers. These ledgers then become the balance sheet and the income statement. If a company sends an invoice, the accountant records it as a debit in the account receivables. This is used in the balance sheets. They then record it as a credit in the sales revenue. This will be used in the income statement. This is referred to as double entry or balancing the book. The entries have to be balanced against each other otherwise, there is a discrepancy in the general ledger.
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