Table of Contents
What is an Accounting & Its Definition
Explanation of Accounting Definition
• Summarizing and Reporting
- When accountant updates the daybooks and ledgers it will be called recording of the transaction.
- $400 debited with Assets, $300 credited with cash and $100 XYZ Co. This is called classification. The account should be charged as per their chart of accounts.
- In financial reports, when accounts will be closed and balance sheet updated with closing balances of ledgers, assets will be increased with $100 and liability also with $100. Cash is also assets, so the net effect is $ 100 ($400- $300).
- Then Analysis will be made on financial reports how much increase in assets and liabilities.
Accounting and finance is a very complex subject and has many different facets to it. In large companies, the various functions will have a number of people performing them because the sheer volume of transactions would be far too great for just one accountant to handle. Usually, there will be an accounts receivable section that invoices for the goods or services that the company has sold and who will also ensure that those invoices are paid on time.
In turn, there will be the accounts payable department who will process the invoices for goods and services that the company has purchased and make sure those are paid when they fall due. There may well be separate credit and purchase ledger controllers, management accountants, tax accountants, financial accountants and at the very top of the company accounting and finance function, the chief financial officer (CFO).
Importance of Accounting
When asking the question of what is accounting, you can see that it lies at the very heart of any entity that is involved business, be it a one-man trader or a multinational conglomerate. By law and to comply with statutory regulations and tax authorities, a company or trading individual is required to present a set of accounts that clearly state their financial position. Usually, this is done on an annual basis and large companies are also required by law to have their accounts independently verified by a firm of auditors.
The owners and or directors of a company are required to select suitable accounting policies, and then apply them consistently, make judgements and estimates that are reasonable and prudent and prepare the accounts on a going concern basis. This is so shareholders and other interested parties can be satisfied that the set of accounts the company produces are a fair and accurate view of the state of affairs of the company.
If you are considering entering the accounting and finance profession or just want to find out more about how it works, then I hope the information on this site will go some way in helping you find what you are looking for.