Accounting is an important part of business as it provides methods of recording financial transactions such as sales, purchases, income, liabilities, and net worth. This also helps to control, monitor, evaluate, communicate, and predict financial results. Accounting involves the application of principles to such things as information systems, tax, and financial reporting. More specifically, accounting deals with preparing financial reports in a systematic, logical, and organized manner.
What is Accounting? Accounting is the scientific process of data processing, estimation, assessment, and communication of financial and other non-financial data about businesses and other organizations. This includes valuing the financial data and various procedures used for that purpose. There are two types of accounting. First is manual bookkeeping or accounting.
Manual bookkeeping involves recording the daily transactions made by a business. It is very time consuming, because you have to record each and every transaction in your office. Second type is cost accounting or computerized basic accounting. It includes computer software programs which aid businesses in keeping track of financial data. There are three basic principles on what is accounting. They are first, information must be processed; second, information must be communicated; third, the procedure must be controlled.
The first principle on what is accounting is that information must be processed. There are various processes of accounting. It could be sales information, inventory, purchasing, production, financing, human resource, internal control, and many more. These processes make a whole business and its financial health. So, for a small business, an accountant will help it in processing its financial health.
Second principle on what is accounting is that information must be communicated. Accounting has played an important role in the communication of managerial accounting information. Accounting works as a tool for decision making. It helps managers to make economical, risk, investment, and marketing decisions. Therefore, management accountants produce reports, analysis, and recommendations based on the managerial accounting information they have obtained from all the different sources.
Third principle on what is accounting is that the process of accounting refers to information systems, also called systems of record. A system of records keeps track of all the financial statements, a company has to give to the shareholders or other interested parties. Every transaction a company makes in business must be recorded in some sort of bookkeeping.
Fourth principle on what is accounting is that every business must hire accountants. Accountants are the people who make a business successful. Since they do not have any degree or educational attainment required in order to become an accountant, accountants are in great demand. They do have certain qualifications however. Generally, accountants have a bachelor’s degree and several years of experience as an assistant to a certified public accountant or as a junior accountant in a large firm.
Fifth principle on what is accounting is that an accountant is an educator. A good accountant should know how to calculate mathematical data in a way that is understandable to all people. He should know how to compile accounting information into reports for the managers or owners of the company. Some accountants may specialize in particular fields of accounting such as corporate finance, taxation, real estate, commodity markets, international business, health care etc.
Sixth principle on what is accounting is that all financial transactions made by a company are listed in a company’s general ledger. The general ledger is a record of all financial transactions made by the company. All the assets, liabilities, revenues, expenses and payroll of a company are listed in the general ledger. Every transaction that is recorded in the general ledger has a date, which is called a balance day.
Seventh principle on what is accounting is that it should be separated from accounting. For example, internal stakeholders would not care about what is accounting and what is financial accounting. Internal stakeholders would care about what is accounting and what is financial accounting. Therefore, no one should make decisions on which accounting standards to follow or which accounting software to use based on what is accounting. The accounting standards and software must be compatible with each other.
Efficient use accounting information. An effective accounting system ensures efficient use of accounting information. This means that a company’s financial documents and reports (which are often prepared reports in paper form) contain accurate information. It also means that the internal stakeholders of a company are informed judgments about the nature of the events that they have observed. If they are informed judgments they can act on those judgments, control and prevent events from happening that they did not observe.
Accounting is about information. It is therefore a business activity. Companies must make sure that the information that they are recording is as correct and reliable as possible. They should also keep a record of every transaction that they do and keep track of their financial position regularly, so that when they need information about their financial position, they can access it quickly and easily, from anywhere in the world.