What is accounting and what is it for
Accounting is the art of organizing, maintaining, recording and analyzing financial activities. In other words it is the language of business. Accounting is concerned with reporting on the effects of past decisions. And an accountant is concerned with the provision and interpretation of financial information.
What is accounting information designed to help in decisions concerning resource allocation and it describes the effect of past resource allocation decisions. Examples of resource allocation decisions are: Should an investor buy or sell shares? Should a bank manager lend money to a firm? How much tax should a company pay?
Users of accounting information. Everyone uses accounting information, for example managers, investors, bankers, suppliers, and even customers and employees.
The accountant keeps track of all business transactions, it is any business activity that effects what a business owns and owes. Accounting contains elements of both science and art. The important thing is that it is not a collection of arithmetical techniques but a set of complex processes depending on and prepared for people. human aspects play a huge role in accounting.
Function. l)Provision of information in financial terms that will help in decisions concerning resource allocation 2)preparation of reports in financial terms describing the effect of past resource allocation decisions.
Bookkeeping. The difference between bookkeeping and accounting
The actual record-making phase of accounting is usually called bookkeeping; consequently bookkeeper is a record-making face of accounting. However, accounting extends far beyond the actual making of records. Accounting is concerned with the use to winch these records are put their analysis and interpretation. In particular he should be more interested in die relationship between the financial results and die events which have created them. management to select the best plan of action for the business. Bookkeepers record every purchase and sale in journals (a book of original or first entry). At a later period, these temporary records are entered in ledger (a book of secondary entry). Then all the relevant totals are transferred to use profit and loss account (an individual record of specific items that a business owns and awes). Double entry records the dual effect of every transaction. It is a method of accounting in which for every debit entry must be a corresponding credit entry of the same amount. Payments made or debits are entered on the left-hand side of an account, and payment received or credits on the right-hand side. Bookkeepers will periodically do a trail balance (a report prepared at any moment in time to prove die accuracy of die ledger. In most business transactions die seller of goods or service sends the buyer a bill or invoice and later a receipt acknowledging payment Businesses are obliged to retain die documents- known as vouchers - mat support or prove an item in an account and make diem available to die internal and me external auditors who check the account.
Financial accounting vs. managerial accounting. Accounting can be divided into some fields: financial and managerial accounting, creative, cost and tax accounting. Financial accounting provides information for external users: stockholders and creditors who wand and need financial accounting information. Managerial accounting provides information for internal users: all members of the organization. managers can use to make decisions. Internal management decisions can be classified into four major types:
- Financial decisions
- Resource allocation decisions
- Production decisions
- Marketing decisions
Creative accounting - (window dressing) making a company's financial situation look as good as possible
in the balance sheet. It's a good way of reducing a tax bill.
Cost accounting- deals with working out the real cost of each item the company makes.
Tax accounting - calculating individual's or a company's liability for tax.
Financial statements provide much of the information needed by external users of financial accounting.
These financial statements are balance sheet, profit and loss account, cash-flow statement. Many companies publish these statements in an annual report, which also contains the independent auditor's opinion and general information about the company's activities, products and plans.The balance sheet, which consists of a detailed listing of the l)various assets, 2)liabilities, and 3proprietor's capital (or shareholders' equity) on a specific date, shows the financial position and condition of the organization at that moment in time. the order of preparation of the documents never changes. assets (the things which have value) and the liabilities (money that a company will have to pay to someone else: taxes, debts On every balance sheet items are classified according to categories: Assets, Liabilities, and Stockholders' Equity or Share Capital.
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