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.
Multitude of these legal and operational structures clubbed with accounting and reporting needs give rise to many reporting dimensions at which the organization may want to track or report its operational metrics and financial results. This is where business dimensions play a vital role.
What is a Business Eco System?
The goal of a business is to generate capital appreciation and profits for its owners or stakeholders by engaging in provision of goods and services to customers within the eco system/framework governed by respective laws(local/international). The eco system involves various entities that the business works with for delivery of a product or service.
GL - Recurring Journal Entries
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
Hierarchical Organization Structures
Hierarchical structure is typical for larger businesses and organizations. It relies on having different levels of authority with a chain of command connecting multiple management levels within the organization. The decision-making process is typically formal and flows from the top down.
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.
GL - Different Accounting Methods
The accounting method refers to the rules a company follows in reporting revenues and expenses. Understand the two common systems of bookkeeping, single, and double-entry accounting systems. Learners will also understand the two most common accounting methods; cash and accrual methods of accounting and the advantages and disadvantages of using them.
Global Business Services (GBS) Model
Global business services (GBS) is an integrated, scalable, and mature version of the shared services model. Global Business Services Model is a result of shared services maturing and evolving on a global scale. It is represented by the growth and maturity of the Shared services to better service the global corporations they support.
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.
Defining Organizational Hierarchies
A hierarchy is an ordered series of related objects. You can relate hierarchy with “pyramid” - where each step of the pyramid is subordinate to the one above it. One can use drill up or down to perform multi-dimensional analysis with a hierarchy. Multi-dimensional analysis uses dimension objects organized in a meaningful order and allows users to observe data from various viewpoints.
GL - Different Type of Journals
Two basic types of journals exist: general and special. In this article, the learner will understand the meaning of journalizing and the steps required to create a journal entry. This article will also discuss the types of journals and will help you understand general journals & special journals. In the end, we will explain the impact of automated ERPs on the Journalizing Process.
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