Accountants are responsible for recording financial activity, the design and management of the financial systems that bookkeepers use.
Accounting is the process of producing financial statements for a business like income statement and balance sheet.
Managers and investors depend on accountants to provide them with objective, reliable information about the financial condition of the companies they deal with.
For this reason, the accounting profession is crucial to the operation of businesses in all sectors.
An account is a record of increases and decreases in a specific asset, liability, equity, revenue or expense item.
A company’s business records are known as accounts. For example, expense report should be sent to the accounts department at the end of each month.
The basic principles of keeping the company’s accounts are very simple.
All flow of funds in and out of the company need to be recorded, with clear tracking of debits and credits.
A debit is a cost or charge paid by a company for purchases.
For example, as soon as the transaction is processed, the bank will debit your account credit is also acceptable A credit is a sum of money transferred to a company or individual.
A transaction is a single financial or business dealing, usually involves the delivery of goods or services in exchange for payment.
This recording of transactions is known as bookkeeping, sine it involves preparing “books”, or more likely computer records, with financial information about the company.
These bookkeeping records are known as the company’s ledger.
At regular intervals-for example, every month or every quarter-the book must be examined to ensure that they balance correctly.
Bookkeeping means keeping basic financial records, tracking and providing information used by business.
It is the practice of making detailed record of a company’s business transactions, including all flows of money in and out of the company and all changes in the goods or property that it owns.
The records produced by bookkeepers.
For example, our bookkeeper is very strict about documenting even the smallest expenses.
The balance is the summary of a company’s financial position at a specific point in time, usually the end of its financial year.
It shows the value of everything the company owns as well as everything that its owes and the amount of funds left in a bank account after all debits and credits have been calculated.
For example, your accounts show a balance of $ 460.00.
Balance sheet is a detailed summary of a person’s or a company’s financial condition at specific point in time, taking into account their assets, liabilities, etc.
It’s a financial statement that presents a firm’s assets, liabilities, and owners’ equity at a particular point in time A ledger or general ledger is a book, a computer file where company’s financial activities are recorded.
The ledger is checked, or reconciled against other records containing all accounts used by the company, to confirm that no information is missing or incorrect.
The field of accounting consists of three broad subfields: financial accounting, management accounting, and auditing.
This classification is user-oriented.
Financial accounting is concerned with communicating accounting information to external parties.
Management accounting is concerned with generating accounting information for managers and other employees to assist them in performing their jobs.
Auditing refers to examining the authenticity and usefulness of all types of accounting information.
Other subfields of accounting include tax and accounting information systems.
What is management accounting?
Management accounting combines accounting, finance and management with the leading edge techniques needed to drive successful businesses.
Chartered management accountants:
Advise managers about the financial implications of projects.
Explain the financial consequences of business decisions.
Formulate business strategy.
Monitor spending and financial control.
Conduct internal business audits.
Explain the impact of the competitive landscape.
Bring a high level of professionalism and integrity to business.
Statement of cash flows: A summary of the actual or anticipated incomings and outgoings of cash in a firm over an accounting period (month, quarter, year).
It answers the questions:
Where the money came (will come) from?
Where it went (will go)?
Cash flow statements assess the amount, timing, and predictability of cash-inflows and cash-outflows, and are used as the basis for budgeting and business-planning.
The accounting data is presented usually in three main sections:
1. Operating-activities (sales of goods or services),
2. Investing-activities (sale or purchase of an asset, for example), and
3. financing-activities (borrowings, or sale of common stock, for example).
Together, these sections show the overall (net) change in the firm’s cash-flow for the period the statement is prepared.
Lenders and potential investors closely examine the cash flow resulting from the operating activities.
This section represents after-tax net income plus depreciation and amortization and, therefore, the ability of the firm to service its debt and pay dividends.
With balance sheet and income statement (profit and loss account), cash flow statement constitutes the critical set of financial information required to manage a business.
Also called statement of cash flows.