What is Accounting & Book Keeping
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.
What is accounting?
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.
The American Institute of Certified Public Accountants (AICPA)
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 etymology of Word Accountant:
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”
What is the role of accounting in business?
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.
Role of Accounting Department:
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.
What is bookkeeping?
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.
Related Links
You May Also Like
-
In every journal entry that is recorded, the debits and credits must be equal to ensure that the accounting equation is matched. In this article, we will focus on how to analyze and recorded transactional accounting information by applying the rule of credit and debit. We will also focus on some efficient methods of recording and analyzing transactions.
-
Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts.
-
In this article, we explain some commonly used subsidiary ledgers like accounts receivable subsidiary ledger, accounts payable subsidiary ledger or creditors' subsidiary ledger, inventory subsidiary ledger, fixed assets subsidiary ledger, projects subsidiary ledger, work in progress subsidiary ledger, and cash receipts or payments subsidiary ledger.
-
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.
-
GL - Journal Posting and Balances
In this tutorial, we will explain what we mean by the posting process and what are the major differences between the posting process in the manual accounting system compared to the automated accounting systems and ERPs. This article also explains how posting also happens in subsidiary ledgers and subsequently that information is again posted to the general ledger.
-
Understand what we mean by GAAP to STAT adjustments. This article discusses the different standards that are used for multiple representations of the financial results for global organizations. Understand the meaning of US GAAP, Local GAAP, STAT, IFRS, and STAT. Finally, understand why accounting differences arise and how they are adjusted for different financial representations.
-
In this article, we will explain the general Ledger journal processing flow from entering journals to running the final financial reports. Understand the generic general ledger process flow as it happens in automated ERP systems. The accounting cycle explains the flow of converting raw accounting data to financial information whereas general ledger process flow explains how journals flow in the system.
-
An account inquiry is a review of any type of financial account, whether it be a depository account or a credit account. In this tutorial, you learn what we mean by drill through functionality in the context of the general ledger system. We will explain the concept of drill-down and how it enables users to perform account and transaction inquiry at a granular level and the benefits of using this functionality.
-
As the business grows, the company may want to transition to a branch structure as branches are allowed to conduct a much broader range of activity than representative offices. Branches can buy and sell goods, sign contracts, build things, render services, and generally everything that a regular business can do. A company expands its business by opening up its branch offices in various parts of the country as well as in other countries.
-
What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.
