Accounting or accounts receivable is the measurement, recording, processing and communication of non-financial financial information concerning companies and other financial entities. This information is needed by owners of the concerned entity to know and to manage their accounts and make necessary adjustments for growth, inventory, costs and revenues. This process also helps owners to identify existing liabilities and assets, calculate the present value of future payments, and prepare reports at periodic intervals. The importance accounting has in a company can be understood from the fact that without accounting information, companies would not be able to perform their operations.
There are two types of accounting; single-entry and double-entry. Single-entry system uses only account information that has been collected and processed by one or more accountants and is thus less complicated than double-entry system, which uses balances of transactions and documents for creating financial statements. The primary difference between the two systems is that a company’s first entry, the money or assets being bought or sold, is entered as a cash transaction and the effect on the balance sheet is recognized as revenue. On the other hand, a second entry is made by the principal as an asset and the effect on the balance sheet as a liability. A third entry is made by the agency or firm that has granted the right to a person to buy or sell the asset.
All the activities in a company’s accounting process are interrelated and therefore accounting data must be systematic. Every transaction, expense, sale or purchase must be separately recorded, thus accounting data is considered to be systematic when all the activities related to a specific transaction is entered in a particular ledger or journal. All the various payments and receipts including those that were made in the course of the year are reflected in the journal or ledger. However, certain transactions may be entered in more than one ledger or journal. Generally, all the entries in journals are interrelated so that the effect of one transaction is reflected on another transaction, and if these transactions do not coincide with each other, it will have an unfavorable effect on the account performance.
Auditors play a significant role in the preparation of accounting reports. They analyze the financial statements of the company, which include the income statement, balance sheet, statement of cash flows, and statement of cash profits and losses. The auditor makes an evaluation of the accounting practices followed by the company. If there is a discrepancy, he usually recommends changes in the accounting procedures that would result in a more accurate portrayal of the company’s financial condition.
Accounting is a complex subject and there are many different methods of accounting practiced around the world. Some of them include the modern method of bookkeeping, which involves recording financial transactions using ledgers and journals, keeping accurate records of the financial statements made by the accountant, drawing up balance sheets of the company’s assets and liabilities, and creating profit and loss statements. The accountant is required to prepare accurate financial statements supported by the data received from the company’s activities. To learn more about the various methods of accounting practiced in accounting, there are many books that have been written by accountants themselves as well as by accountants who have specialized in particular fields.
One area of specialization that is growing in importance in accounting is managerial accounting. Managerial accountants provide managers with reliable and consistent financial information that is needed for decision making. They are also involved in assessing the effectiveness of the strategies used by management to manage their resources. In addition, they are expected to be able to give regular and timely reports on the progress made by management in improving their financial status. A manager should have knowledge in budgeting, finance, sales, purchasing, distribution, staffing, human resources, and business development. Therefore, managerial accountants are in high demand.