Helen Writings
What Is Accounting Anyway?
Anyone who’s worked in an office at some point or another has had to go to accounting. They’re the people who pay and send out the bills that maintain the business running. They do a lot more than that, although. Occasionally referred to as “bean counters” they also keep their eye on profits, costs and losses. Unless you are running your personal company and acting as your own accountant, you’d have no way of knowing just how profitable – or not – your business is without some form of accounting.
No matter what company you’re in, even if all you do is balance a checkbook, that’s still accounting. It’s part of even a kid’s life. Saving an allowance, spending it all at once – these are accounting principles.
What are some other businesses where accounting is critical? Well, farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it’s a good year, a profitable 1, then they can pay off their loan; if not, they may need to carry the loan over, and accrue more interest charges.
Every company and every person needs to have some kind of accounting program in their lives. Otherwise, the finances can get away from them, they don’t know what they’ve spent, or whether they can expect a earnings or a reduction from their company. Staying on top of accounting, whether it’s for any multi-billion dollar business or for a personal checking account is a required activity on a daily basis if you are smart. Not performing so can mean anything from a bounced check or posting a reduction to a company’s shareholders. Both scenarios could be equally devastating.
Accounting is basically information, and this info is published periodically in company as a profit and loss declaration, or an income declaration.
Accounting has been defined as, by Professor of Accounting at the University of Michigan William A Paton as having one fundamental function: “facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data; and 2) communicating the results of this process to interested parties.”
As an example, a company’s accountants periodically measure the earnings and reduction for any month, a quarter or a fiscal year and publish these results in a statement of earnings and loss that’s known as an earnings statement. These statements include elements for example accounts receivable (what’s owed to the company) and accounts payable (what the company owes). It can also get pretty complicated with subjects like retained earnings and accelerated depreciation. This at the higher levels of accounting and within the organization.
Much of accounting though, is also concerned with basic bookkeeping. This is the process that records every transaction; every bill paid, each and every dime owed, each and every dollar and cent spent and accumulated.
But the owners from the company, which could be individual owners or millions of shareholders are most concerned with the summaries of these transactions, contained in the financial declaration. The monetary declaration summarizes a company’s assets. A value of an asset is what it cost when it was very first acquired. The monetary declaration also records what the sources of the assets were. Some assets are in the form of loans that need to be paid back. Profits are also an asset of the business.
In what’s known as double-entry bookkeeping, the liabilities are also summarized. Obviously, a company wants to display a higher amount of assets to offset the liabilities and display a profit. The management of these two elements may be the essence of accounting.
There is a system for performing this; not each and every company or individual can devise their own systems for accounting; the result would be chaos!
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Posted in Accounting · July 5th, 2010 · Comments (0)
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Posted in Accounting · June 9th, 2010 · Comments (0)