A Quick Guide To Make You Understand Accounting
Accounting is a method in which we store, sort and retrieve data that further allows summarizing and presenting the findings of different reports and analyses. Or in simple words, we can say accounting is the recording of financial transactions.. Accounting is also an area of research and practice devoted to the execution of those duties.
In accounting, the general financial statement that has been prepared are balance sheet, ledger, and income statement etc. to present the financial information to the outside parties who need that information. Such reports are supposed to be prepared as per the accepted accounting standards which are developed by the subject experts as ‘Principals of Accounting’.
The Cycle of Accounting You Must Be Aware of.
Accounting starts the moment you enter a business transaction into the ledger of your company, any operation or occurrence that includes the money of your company.
It’s part of bookkeeping to report business transactions this way. And the first stage of what accountants call the “accounting cycle” is bookkeeping: a mechanism designed to take raw financial details and spit out detailed and consistent financial reports.
There are six main stages of the accounting cycle:
Most of these rules and procedures are automated by accounting software, so we can skip over the accounting cycle’s gritty specifics and speak about the final product: financial statements.
Importance of accounting
The financial accounting process is relevant since it deals directly with the money of a corporation, specifically all the expenditures and profits associated with its everyday business activities and investments. It is possible to record the information wrongly, not at all, or poorly catalogued.
It is important to accurately document and accounts for every transaction so that the financial statements of a business are correct. If not, then it might be assumed that there might be some manipulation in the statement which not only impact the goodwill of a firm, but will also lead to trust issue and creditworthiness of that firm. Inaccurate reporting may lead to significant issues for a company later, meaning it might not be able to pay its debts, or there is no capital left to put aside for investment.
In every industry, accountants work for corporations, enjoying employment in small businesses all the way up to very large firms. Without an accountant, most businesses will not be able to survive, since it is the job of an accountant to disclose the economic health of the business through financial statements. Well, accounting does allow to manage and process the data to create the outcomes that are further used to take actions or informed decisions related to the business management like allocation of funds on various projects, control of cash inflow and outflow, expenses control etc. that allows a firm to achieve its profit maximization.
Accountants may also operate on their own, set up their own small company, and sell their services openly. In the form of accounting software and accounting apps, technology makes it easier for many small companies to do their own accounting today, but the human aspect of the equation is still to be considered, as a professional is also required to interpret the data.