Accounting or accountancy is simply the science of recording, processing, and communicating financial and other non financial data about companies and other financial entities. Accounting provides a method for obtaining information to support decision making by managers, stakeholders, investors, tax authorities, regulatory bodies, lenders, customers, and other interested parties. All of this helps us make informed decisions about what actions to take in order to achieve and sustain a particular business objective. In short, accounting provides information that allows decision makers to make decisions that are in the best interests of the company.
The basic parts of accounting include recording of daily financial transactions such as sales transactions, purchases from suppliers, and payments to employees, as well as disbursements among the various activities of the company. Another part of accounting is creating a ledger, which records all the financial transactions recorded on paper. This ledger is called a journal or ledgers. In addition to the journal, there are also software programs that create data base accounts, transfer ledger, human resource ledgers, balance sheet, and several other forms. It is these additional forms of accounting that are being developed to facilitate the modern age in comparing and integrating the internal and external information that are needed for the purpose of making informed decisions.
There are three basic parts to accounting: general ledger, balance sheet, and personal accounts. The general ledger is the everyday financial account and contains the information necessary to perform all the accounting processes. This includes income from sales of products or services, purchases from suppliers, and cash disbursements among the activities of the company.
Balance Sheet records the difference between financial assets and liabilities, including the carrying amount and net worth, among the elements of debt and equity. The balance sheet must be prepared regularly to allow accountants to calculate the effect of changes in the inventory, liabilities, and net worth. In addition to balancing sheets, there are also other types of accounting such as cost accounting, gross profit, and accounting for tax payments. All of these require specific techniques to determine financial health.
Another area of accounting is forecasting, which involves the process of predicting the direction of activity based on current information. This includes creating a short-term financial statement and a medium-term and long-term financial statement. By assessing and determining the overall effect of all financial transactions, accountants can provide managers with an accurate depiction of the company’s future financial position. Another major part of accounting is analyzing the results of cash flows and identifying those areas that require improvement. Cash flow analysis is used to determine if cash resources will be sufficient to support the operations and maintenance of specific activities, while budgeting and forecasting helps determine allocation of resources to meet operational requirements.
Accountants play a vital role in every aspect of business. With the invention of new information, improved methods of decision making, and technological developments, accounting has become more complex. As a result, many companies have turned to the services of an accountant to assist them with strategic planning and manage their day-to-day operations. Today, even small businesses recognize the importance of accounting and have begun hiring certified accountants to perform basic accounting functions so that they can effectively operate their businesses.