What is Accounting?
Accounting is a record of monetary transaction which funds are used in business to run it or record of output too. In business does not just count the salary of workers or dealers’ payment there is counting of pen using to using car in office. In simple terms every small monetary transaction recorded in accounts of company. Financial records in manner of recording, classifying, summarizing and analyzing and interpreting. By all these records company gets easy in forecasting decision making.
How Accounting Works
Accounting is very important function for every type of business. In small shops or sole proprietorship firms handle the accounts by accountant or in large companies by finance department with many employees working on accounting software. The business accounting reports prepared by various streams like cost accounting, management accounting. these streams of accounts do excellence in preparation of final accounts. make easy to understand so that internal auditors can take easily decision basis on these reports.
Objectives of Accounting
To keep systematic records – Systematic record of financial transaction help the users to know all about the overall business performance.
Certainty of profit – By maintain all records of business transactions company get well know about how the company earn profit and suffered from loss. And how much the company paid debts during the year or quarterly.
Types of Accounting
Financial accounting – In this accounting quarterly and final report of the year get prepared these types of report are prepared in balance sheet, Income statement and Cash Flow statement. Sometimes company prepared their financial statements by external CPA firms.
Managerial accounting – It works same as manner of financial accounting but it organizes the same work in different way. it adds on some other tools like budgeting, forecasting and various analysis tools and consider all the things which is good for purpose of accounting.
Cost accounting – In cost accounting cost of product count and make account chat on this expense. analysts, managers, accountants and business owners use this information to know what will be manufacturing cost of product.
System of Accounting
There are two system of accounting
Single data entry system – There is a system where is only one-way transactions are recorded like either payments or Income. So that’s why this system is not so long exist in firms. Its other name is incomplete data entry system.
Double data entry system – It is system where all kind of transactions are recorded where the person can maintain its incomes, and expenditures can record and that’s why this system mostly are like by users of accounts and firms and still its exist and work on it.
Users of Accounting
There are two types of users in Internal and External let see what is meaning of it. Users are those who look at the accounts of business. Like first we talk about internal Users these are those users who audit the report at internal level for future decision making and to check the profit and loss and to verify for external users too. The name of the users are owners, managers and employees.
Owners – These are Shareholders of company works at top level and judge the work of managers and command them what to do. reach final report to them to check audit it at internal level and further decision making like these reports shows them what the company prepare for like how much investment company. how can the company make a further structure of work. How much need to fill tax. Etc.
Managers – they work at middle level of company means take order from the owners and command to employees. Other than they are designated with some decision authority too. They complete supervise the work of employees.
Employees –work at preparing report on daily analysis and how the managers to do them.
Internal Auditor – these are the company analysts who make strategy to investment and other monetary funds. There work is use of company fund from where they can get ROI in good Ratio.
External users: – Creditors, Investors, Government, Trading Partners, Regulatory Agencies, International stanrdization agencies and Journalist.
Creditors – These are those who lend money from entity on the promise of repay it.
Investors – who invests in company when the company raise initial public offer or by many things. But before investing in a company investor check the financial position of company for the purpose of payment security and to certain get good ROI.
Government – Financial information is very mandatory for government to check the economic activity.
Without book of Accounts company can’t run properly. It is everything to business. Only by the accounts company get to know what next step should take to earn good profit and minimize loss.
There are many accounts are prepared in business from which the company gets quarterly and yearly information’s like income and expenditure, profit and loss, cash flow statement, final statement, balance sheet, BRS etc.