Accounting or accountancy is simply the communication, analysis, and recording of financial and/or non financial data about organizations including businesses and corporations. In general, this includes the recording of payments made to people or businesses for services rendered; the collection of payments for purchases by customers; records of transactions, including dates and amounts; and information on financial status, assets, liabilities, revenues, and expenses. In today’s ever-changing accounting world, it is essential to have people who are trained to deal specifically with accounting issues in order to appropriately deal with the wide variety of responsibilities that come with such an important job description.
There are several basic parts to accounting including the creation and maintenance of financial statements and reports, preparing the financial statements, tracking changes in the financial statements during the accounting period, analyzing and interpreting the results of the accounting period, and communicating any findings that are significant to the company. As a part of the accounting process, records are created regarding transactions, debts, assets, revenues, and expenses. Financial statements are prepared in order to give investors and the public an idea of a companies’ (its) income, assets, liabilities, and growth and financial future prospects through an orderly presentation of the information. Financial statements are required by most stakeholders in order to receive approval from a variety of sources before making certain business decisions.
The financial statements are used to obtain financing, provide an indication of the health of a company’s finances, and to make other strategic and critical decisions related to the companies operations. For example, a major part of an income statement is the income statement, which measures and records the net income from operating activities for a given period. The statement will also show whether the company has any significant net debt, and will show the balance sheet, which demonstrates the companies total assets, liabilities, and ownership interest in equity securities. The balance sheet should be prepared in a manner that meets the requirements of the US GAAP (Generally Accepted Accounting Principles), as well as be in a reasonable format (for example, not too small or too large). The accountant will likely require information about the following: customer balances, stockholders’ equity, capital assets, and bank deposits (in the case of a bank).
A major part of a CPA’s job is preparing financial statements from accounting reports that originate from within the company. Examples of these reports may include information on cash transactions, vendor accounts receivable, accounts payable, inventory, and so forth. Within this documentation are various types of financial transactions, including: sales and purchases, income from equity transactions, assets, liabilities, revenues, and expenses. An accountant will verify all of the items stated in the balance sheet and adjust the various amounts before presenting the results to the accountants clients.
There are two different types of accounting: Cost Reporting and Process Driven Accounting. In cost reporting accounting, the accountant verifies cost data in order to generate the financial statements; however, such reports are more representative of cash flows rather than income from operating activities. On the other hand, in process driven accounting an accountant only verifies financial transactions from receipt or production, after which he presents the resulting data in the financial statements. Both types of accounting employ a relatively similar methodology for producing financial statements from financial documents.
There are many different perspectives on what a CPA should provide their clients. Accountants must ensure that all the required information is collected, organized, and presented in a format that the stakeholders can understand and use. They must also ensure that all the transactions are recorded in the proper account records, so that when a related transaction occurs such as purchase of inventory or equipment, it will not be confused with another account. All transactions must be recorded in the proper journals and journal accounts for tax purposes. Finally, an accountants responsibility is to ensure that all the financial reports produced by his or her clients meet their legal obligations and any applicable resolutions for tax audits.