November 5, 2021

The Key Aspects of Accounting

Accountancy or accounting is the measurement, recording, and communication of information about non-financial financial characteristics of specific organizations including companies and corporations. The term is often used in place of management accounting, which emphasizes the process by which companies judge their own and their businesses’ performance. There are three major areas accounting focuses on:

Financial Accounting. This area of accounting concerns itself with the preparation of financial statements that summarize and represent the financial data of a company or entity. All public financial statements, that is, statements that reveal publicly available information that is required by applicable laws or regulations to be made available to shareholders and owners of a company, are first examined for accuracy and completeness by accountants. After these statements are prepared and submitted to the appropriate regulatory bodies, they are examined for errors and omissions by government accountants. This process is known as auditing. A government accountant performs the roles of auditor general.

Income and Accounting. In addition to financial data, income accounting collects and provides information regarding expenses and transactions. Companies rely on recorded expenses and transactions when planning, manufacturing, selling, financing, and operating a business. This area of accounting uses various methods, including internal control systems, financial reporting systems, and resource allocation systems, to collect and provide information regarding transactions and activities.

Managerial Accounting. Managerial accounting focuses on analyzing the financial data that would otherwise be the responsibility of management. A manager analyzes and discusses the assets, liabilities, revenues, and expenses of an organization and then makes recommendations about how to best use those resources to achieve organizational objectives. This area of accounting employs a variety of strategies, including cost management, information management, and operational effectiveness, in order to achieve its managerial objectives.

The four major areas of accounting are control, preparation, reporting, and judgment. Management control involves policies and procedures governing the access, use, and dispositions of financial statements and accounting information. Financial statement preparation encompasses the process of preparing and analyzing accounting reports; identifying those reports that require further analysis; communicating changes in financial position to senior management; and reporting requirements to other organizational units. Reporting covers what activities are performed in an accounting position and those activities that result from those positions. Judgment refers to decisions and actions that are made based on accounting results and information.

A qualified accountant will be adept at assessing the accounting principles used by an organization and will also possess good interpersonal skills. In general, a good accountant will have an education and experience in finance, bookkeeping, management, payroll, taxes, human resources, and other areas of business. Although most accountants obtain their initial training by attending an accounting college, some choose to pursue degrees or certification programs in other fields such as law, medicine, computer science, economics, and math. Others continue their education by obtaining related master’s degrees. Whether they choose to go to an accounting college or another educational venue, the most important thing is for accountants to recognize the importance of accounting to their employers.

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