Accounting is a process designed to capture the economic impact of everyday transactions. Each day, many events and activities occur in an entity, these events and activities are in the normal course of business; however, each of these events may or may not have an economic impact. Events or activities that have an effect on the accounting equation are accounting events.
Accounting is the process of transforming the financial information associated with economic activity into usable financial information. Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions. An accounting system can be a simple, utilitarian check register, or, as with modern automated enterprise resource planning systems, it can be a complete record of all the activities of a business, providing details of every aspect of the business, allowing the analysis of business trends, and providing insight into future prospects.
Accountancy is "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions, and events which are, in part at least, of financial character, and interpreting the results thereof."
The outcome of the accounting process is a group of financial statements that reflect an organization's financial position, liquidity, and profitability. Periodically, financial statements are prepared to reveal the financial position and the results of operations. These financial statements are the output of the accounting process and become an input into the analysis and decision-making activities of business owners, investors, managers, creditors, and government regulators.
These financial statements or reports are shared with the stakeholders (interested parties) who analyze, interpret, and use this accounting information for their own purposes. This information helps the users with their analysis and decision making for various objectives like investment or understanding and improving the current business. Automated accounting is an information system that provides reports to stakeholders about the economic activities and conditions of a business.
The word "Accountant" is derived from the French word Compter, which took its origin from the Latin word Computer. The word was formerly written in English as "Accomptant", but in process of time the word, which was always pronounced by dropping the "p", became gradually changed both in pronunciation and in orthography to its present form as “Accountant”
As discussed earlier, accounting provides information for managers to use in operating the business effectively and efficiently. In addition, accounting provides information to other stakeholders to use in assessing the economic performance and condition of the business. Accounting is generally referred to as the “language of business.” This is because accounting is the means by which business information is communicated to the stakeholders.
For example, accounting reports summarizing the profitability of a new product help management decide whether to continue selling the product. Likewise, financial analysts use accounting reports in deciding whether to recommend the purchase of the Company’s stock. Banks use accounting reports in determining the amount of credit to extend to the company and suppliers on the other hand use accounting reports in deciding whether to offer credit to the company for purchases of supplies and raw materials. Governments and other statutory bodies use accounting reports to calculate and assess taxes appropriately.
The accounting job is typically done by the Accounting Department, led by an accounting manager, controller, comptroller, or similar title. These folks record all the transactions that occur as the company does its business and then prepare reports that help the company management, and outside constituencies understand the financial impact of those transactions.
The accountants maintain the accounting software, process all the documentation pertaining to transactions that have occurred and record them into the company's general ledger. From all these transaction records the accountants are able to prepare a variety of reports. Some are for people outside the company, like the government, bankers, investors, and stockholders and others are the reports that are important for running the company efficiently. Accountants prepare financial reports that managers use to understand their company’s financial past and make decisions about its financial future. Automated accounting programs typically produce a variety of reports and we'll discuss these reports in-depth in later sub-sections that pertain to the general ledger.
Bookkeeping is the practice of recording transactions. Bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, and they may or may not see the overall picture. Accountants use the work done by bookkeepers to produce and analyze financial reports. Although accounting follows the same principles and rules as bookkeeping, accounting converts them into meaningful financial information that captures all of the details necessary to satisfy the needs of the business — managerial, financial reporting, projection, analysis, and tax reporting. Effective accounting practices across a company will create a system of financial reporting that gives a complete picture of the business.
GL - Accrued / Unbilled Revenue
Accrued revenues (also called accrued assets) are revenues already earned but not yet paid by the customer or posted to the general ledger. Understand what we mean by the terms accrued revenue, accrued assets, and unbilled revenue. Explore the business conditions that require recognition of accrued revenue in the books of accounts and some industries where this practice is prevalent.
An allocation is a process of shifting overhead costs to cost objects, using a rational basis of allotment. Understand what is the meaning of allocation in the accounting context and how defining mass allocations simplifies the process of allocating overheads to various accounting segments. Explore types of allocations and see some practical examples of mass allocations in real business situations.
Generally Accepted Accounting Principles define the accounting procedures, and understanding them is essential to producing accurate and meaningful records. In this article we emphasize on accounting principles and concepts so that the learner can understand the “why” of accounting which will help you gain an understanding of the full significance of accounting.
Introduction to Legal Entities Concept
Modern business organizations operate globally and leverage a large number of registered legal entities, and operate through complex matrix relationships. To stay competitive in the current global business environment, they must often develop highly diverse and complex organizational structures that cross international borders. Learn more about Legal Entities and their importance for businesses.
An organizational design is the process by which a company defines and manages elements of structure so that an organization can control the activities necessary to achieve its goals. Good organizational structure and design helps improve communication, increase productivity, and inspire innovation. Organizational structure is the formal system of task and activity relationships to clearly define how people coordinate their actions and use resources to achieve organizational goals.
Network Organizational Structures
The newest, and most divergent, team structure is commonly known as a Network Structure (also called "lean" structure) has central, core functions that operate the strategic business. It outsources or subcontracts non-core functions. When an organization needs to control other organizations or agencies whose participation is essential to the success, a network structure is organized.
In this article we will discuss various types of "Management Entities". Various types of operational units, are created by management, to effectively run, manage and control their business. Different types of functional units, and divisional units, are widely used across industry.
There are two commonly used methods of accounting - Cash Basis and the Accruals Basis. Understand the difference between accruals and reversals. Recap the earlier discussion we had on accruals and reversals and see the comparison between these two different but related accounting concepts. Understand how the action of accruing results in reversals subsequently in the accounting cycle.
General Ledger - Advanced Features
Modern automated general ledger systems provide detailed and powerful support for financial reporting and budgeting and can report against multiple legal entities from the single system. These systems offer many advanced functionalities right from journal capture to advanced reporting. This article will provide an overview of some advanced features available in today's General Ledgers.
In this article we will focus on and understand the accounting process which enables the accounting system to provide the necessary information to business stakeholders. We will deep dive into each of the steps of accounting and will understand how to identify accounting transactions and the process for recording accounting information and transactions.
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