Accounting is the act of recording, reporting, and analysis of financial transactions of a business. As an accountant I have to hand companies the tools to analyze the financial performances of the business. Accounting is one of the most crucial positions in a business because they are in charge of keeping track of all the financial transactions both coming in and going out. As an accountant you are providing crucial information that could potentially decide whether or not a company should invest or sell out. There are a few basic assumptions of what accountants in general have to pay attention to those are economic entity, time period, monetary unit and going concern.
Economic entity is when the financial activities of a business can be separated from the owners. This means that the business and personal accounts are separate that there is no need to be concerned whether or not the business money is being used for personal gain or use.
Time period is when the business and owners do not want to wait for reports they wants to be able to monitor the company periodically so they can see if the business is succeeding or failing. This can be done monthly or quarterly. The most common of the time periods are the quarterly and yearly reports.
The monetary unit means that in general the dollar is the most effective means of reporting economic data it goes in respect for the value of a dollar. As the dollar never changes even though there is constant inflation and deflation of the monetary value of the dollar the unit stays the same.
The going concern means that it’s assuming that the company will still be operating in the future and the accountants are to use certain techniques in which the accountants act accordingly whether its liquidation or growth.
Accounting has a specific process that has many special terminologies such as debit, credit, and net worth. When speaking in accounting terms it’s important to understand the terminology of the process for example when you are inputting data you need to know what account means for example, a record of the transactions that is represented in words, money or other units of measure. Then you would need to know what debit is which means either it is a reduction to a current liability or revenue, or it is an addition to the Asset. Then you come to credit, the reduction of an asset or the addition to a liability or revenue.
When reporting a business’ growth an accountant would utilize the income statement when showing the revenues and expenses. The revenue is the increase in resources or the growth of money. The expenses are the decrease in resources or the loss of money. Expenses are usually the wages, taxes, advertising and utilities. The income statement is a ledger that allows a company to monitor the company’s revenue and expenses that demonstrates a business’s success or failure over a period of time. The positive and negative values of these outcomes are the net incomes (positive) and the net loss (negative).
As an accountant I have learned many principles and the value of the dollar. I enjoy working with number as they are consistently the same no matter what the inflation says a dollar is worth it is still only 1 dollar when it comes to reporting. I can take the knowledge I have of balancing the money in accounts and be able to use it when balancing my check accounts and the bills. If I were to create a ledge for my household I would create the report to show the credit of the money on the right column while debits are on the left, these represent the monetary value of what is coming in and what is going out. For example I got paid last week and so I would log that amount in the credit column. But then I made a payment to the phone company so I would put that value in the left column and then would create the balance in the far right column to show the amount available.
Another way of looking at accounting is the acts of purchasing a house you have the equity, the mortgage the principal interest. You would create a ledger monitoring the status of the loan the amount you are paying and how much of that is going to the principal and what is going to the loan itself. You would know how much you have paid and the remaining amount on that loan. This same concept could go for cars but in a less complicated fashion, you have your principal and interest, you monitor the amount you pay and when the loan ends you will know the value in which you paid total you can pay early in order to reduce the amount of interest that you want to pay and the time span of the loan.
These days when you have a small business they have tools on the computers to do the math for you all you have to do are input data into the cloud and it computes it for you. For example I am running a small rental shop and I have a lot of action going in and out of the office and so I invest in this program, quick books. This program creates ledgers for me that show me all the amounts of money that I would have and lose based on the amounts going in and out or the revenues and expenses.
Resources:
Financial ACCT, 2010, Godwin, Chapter 1.