The Role of Accounting in Business
The words accounting and bookkeeping are related but distinct concepts. Bookkeeping refers to those works that record the financial transactions of a company. Accounting on the other hand refers to the systematic process for the preparation and recording of financial records. Bookkeeping involves the systematic recognition, measurement, reporting, and interpretation of financial data concerning non-financial entities including businesses and companies. The primary task of bookkeepers is to create accounting records; however, they may also perform other responsibilities such as developing financial statements and reports. Bookkeepers must ensure the accuracy and completeness of financial records by maintaining accurate records at the end of the year.
There are three types of accountants in accounting. Professional accountants are those who work in firms on a freelance basis. Business accountants work for larger organizations and are responsible for financial reporting and accounting matters for their clients. Government accountants are responsible for preparing federal tax returns and preparing audits of individual tax returns and financial statements. Non-profit accountants work in schools, hospitals, charities, and think tanks and are responsible for tracking and analyzing nonprofit organization finances. In order to become an accountant, one needs to obtain a four-year degree from an accredited university or college and pass the American Association of Certified Public Accountants (AACPA) examination.
Accounting is a complex process that involves the recording of financial transactions and the determination of its fair value. Fair value is a monetary value that is equal to the cost of doing business divided by the amount of the financial transactions involved. An accountant’s evaluation of an item’s fair value would be affected by many factors such as the type of transactions being made, the period of the transactions occurred, the type of transactions, the legal agreement under which the transactions took place, and the amount of reliance that is placed on the recorded financial statements. An example of a financial statement is a balance sheet, which shows the difference between assets and liabilities.
A company’s cash flows are the difference between its financial position at the end of a reporting period and its financial position at the beginning of the same reporting period. The difference is known as operating liquidity and accounts receivable. All of a company’s cash flows must be determined in order to evaluate its financial position and determine whether it is in a profitable position or not.
When a company prepares its financial statements it combines the information provided by the balance sheet along with other accounting records such as income taxes, accrued expenses, current and historical earnings per share, and the effect of market changes on the business. All of these items are then combined by a certified public accountant. After the accountant puts all of the information together, he will form a financial statement that presents all of the details regarding the company’s assets, liabilities, ownership interest, and net worth. In order to understand the financial statements, it is helpful to first review the accounting procedures used by every business large or small.
Every public business must submit information to the government for auditing. Audits are required of all companies no matter what size. To ensure that the accounting reports comply with the requirements of the US GAAP (Generally Accepted Accounting Principles), each company is required to prepare and submit to the government, under the Federal tax law, annual reports on its accounting transactions and affairs. There are two different types of auditors, the internal auditors and external auditors.
An internal accountant is usually a salaried accountant whose responsibilities are limited to managerial duties. Internal accountants are responsible for providing accounting information to the management and for preparing the financial reports required to be filed with the Federal government. Internal accountants may, however, also perform the technical aspects of accounting as well as perform other clerical functions. The most common types of internal accountants are bookkeepers, who prepare daily accounts and maintain records; and secretaries, who perform administrative tasks as needed. External accountants, on the other hand, are required to have a higher level of education than their counterparts. This position requires a degree in accounting but typically does not require additional specialized training.
When it comes to managing accounting details, a manager is responsible for ensuring that a company’s financial records are accurate, up-to-date, and honest. A manager is involved in day-to-day decision making and is often responsible for approving the accounting policies of a company. Managers are required to develop an overall budget and oversee the implementation of those policies. Properly managed accounting helps reduce the cost of doing business by reducing the number of errors made in the calculations of inventory costs, product costs, and customer charges.