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Monday, October 31, 2022

ACCOUNTING



ACCOUNTING:

Term accounting use to define Recording of transactions, Summarizing the business flow, analyze to make policy based concrete decision and reporting the current and future growth prospects of company. Here the financial information is served to shareholder and stake holder in understandable format, i.e., financial transaction, performance and cash flow.

Accounting standards improve the reliability of financial statements. The financial statements include the income statement, the balance sheet, the cash flow statement, and the statement of retained earnings. The standardized reporting allows all stakeholders and shareholders to assess the performance of a business. Financial statements need to be transparent, reliable, and accurate. 

We have classification for accounting" 

1.   Financial Accounting  

Financial accounting involves the preparation of accurate financial statements. The focus of financial accounting is to measure the performance of a business as accurately as possible. While financial statements are for external use, they may also be for internal management use to help make decisions. Accounting principles and standards, such as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards), are standards that are widely adopted in financial accounting.  The accounting standards are important because they allow all stakeholders and shareholders to easily understand and interpret the reported financial statements from year to year.

2.   Managerial Accounting

Managerial accounting analyzes the information gathered from financial accounting. It refers to the process of preparing reports about business operations. The reports serve to assist the management team in making strategic and tactical business decisions.

Managerial accounting is a process that allows an enterprise to achieve maximum efficiency by reviewing accounting information, deciding on the best next steps to follow, and then communicating these next steps to internal business managers.

An example of managerial accounting is cost accounting. Cost accounting focuses on a detailed break-up of costs for effective cost control. Managerial accounting is very important in the decision-making process.

Income statement

Often, the first place an investor or analyst will look is the income statement. The income statement shows the performance of the business throughout each period, displaying sales revenue at the very top. The statement then deducts the cost of goods sold (COGS) to find gross profit. From there, the gross profit is affected by other operating expenses and income, depending on the nature of the business, to reach net income at the bottom – “the bottom line” for the business. 

Balance sheet

The balance sheet displays the company’s assets, liabilities, and shareholders’ equity at a point in time. As commonly known, assets must equal liabilities plus equity. The asset section begins with cash and equivalents, which should equal the balance found at the end of the cash flow statement. The balance sheet then displays the changes in each major account from period to period. Net income from the income statement flows into the balance sheet as a change in retained earnings (adjusted for payment of dividends). 

Cash flow statement

The cash flow statement then takes net income and adjusts it for any non-cash expenses. Then, using changes in the balance sheet, usage and receipt of cash is found. The cash flow statement displays the change in cash per period, as well as the beginning balance and ending balance of cash.

The Role of Accountant

The role of an accountant is to responsibly report and interpret financial records. Small businesses may hire only one accountant. Large companies may employ an entire accounting department.

The accounting profession covers a broad range of roles, including bookkeeping, tax planning, and audit. Accountants may become certified with designations, such as Certified Public Accountant (CPA) in the U.S., Chartered Accountant (ACA) in the U.K., Chartered Professional Accountant (CPA) in Canada, and so on. The four largest accounting firms globally include Deloitte, KPMG, PwC, and EY.

There are some popular Accounting software for small and medium size businesses. They are defined by their types and use. Their types are,

1. Cloud based
2. On premises
3. Enterprise Accounting
4. Small business Accounting
5. Open source Accounting
6. ERP Accounting
7. Commercial Accounting
8. Industry-Specific Accounting

These Accounting software should have essential features like,

  • Accounting
  • Billing & Invoicing
  • Inventory
  • Payroll
  • Project Management
  • Reporting 
  • Customer Relationship Management (CRM)

Popular accounting softwares are Tally, Zoho books, Fresh books, Margin Edge, Wave, Xero, Neat, Kashoo etc

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