When asking what is accounting, it can be described as the way companies or individuals who are involved in business, record and measure their financial transactions. By doing so they can at a specific point in time and over a stipulated period, be able to assess their performance and wealth. The fundamental process of doing this is called book keeping which at its basic level, involves making an equal and opposite entry in the ledger for each transaction so that the entire set of accounts always balances. These two entries are called debits and credits and are essential to what is accounting.
Computerisation of accounting has made the whole process of recording transactions and producing reports much easier to accomplish and cut down many of the more onerous tasks that were part of the job in days gone by. When all the transactions for a given period are recorded and up to date, the accountant can then look at his set of books and get a true representation of how the company has performed. The report that depicts this information is called a profit and loss statement and as its name suggests, indicates if the company has recorded a profit or sustained a loss. The other significant accounting report is called a balance sheet. This is a snapshot at a given point in time and shows the assets and liabilities of a company and is a very good indicator of its financial health.
The financial information that a company produces is important for both internal and external parties. The management of a company bases its decisions and plans for the future on the premise that this information reflects a true and accurate representation of the company’s performance over a period of time. It also needs to accurately record the wealth of a company at a specific point in time and detail the assets and liabilites together with the retained equity. By making this information available, external parties such as investors can analyse the figures and come to a conclusion as to its profitabilty before deciding whether to invest in it or not.
So What Is Accounting?
There are many different areas of accounting that someone intending to enter the profession, may decide to explore or specialise in. For example credit control is an area of vital importance to a company’s cash flow and is a rewarding area to work in. Management accountants provide internal information for the senior mangement while financial accountants prepare the company’s accounts for statuory submission to external parties. Tax accounting deals with corporation tax which a company is liable to pay when they make profits and is a complex and specialised area to work in. Public accountants work for state and federal departments and forensic accountants deal in areas where fraudulent activity may have taken place.
Another of the areas of importance that are vital to the smooth functioning of a buisness would be payroll accounting. This section of the company processes all the payments for employee earnings, deducting taxes, social security and any other statutory amounts before paying them over to the revenue collecting services. Fines and penalties can be imposed if this is not done correctly and timeously.
Treasury accounting usually occurs in large corporations and is the process of maximising the available cash that a company has at its disposal as well as utilising it in those areas where it is needed. A treasury accountant will assess periodic liquidity requirements and ensure that funds are available for those purposes. He will also invest any excess cash in money markets in order to receive the best rate of interest available while maintaining short term access to the funds.
A further area in what is accounting is an asset accountant who will maintain a register of the company’s fixed assets. These are likely to include plant and machinery, motor vehicles, office equipment, fixtures and fittings as well as certain intellectual rights holdings. These assets are initially valued at their cost in the balance sheet but are depreciated (expensed) over the estimated life of the asset to try and proportion a more equatable charge. Large companies may well have an accountant that solely deals with the fixed asset register.
As you can see there are many different areas of accounting that offer great career opportunities. When asking the question what is accounting, you will need to consider all these different aspects before deciding what area to specialise in.
Read more about what is accounting.