Introduction
We are surrounded by money transactions every day. However, those transactions are difficult, and they may be done incorrectly. A lot of people do not have enough knowledge about money, so they consult someone who specializes in accounting. Accounting is an essential part of our lives, but who does it and how do they do it?
What is accounting?
The process of recording financial transactions in business is called accounting. This process includes summarizing, analyzing, and reporting the said financial transactions to the concerned oversight, regulatory, and tax collection agencies. A company’s operations, financial condition, and cash flows are summarized in the financial statements that are used in accounting. They provide a succinct summary of financial transactions across an accounting period (Fernando, 2022).
How many types of accounting are there?
- Financial accounting
The preparation of a company’s annual financial statements is called financial accounting. By producing these statements, people outside the company, such as investors, government agencies, lenders, buyers, and so on, can also learn how sound the company’s finances are and how the company is profitable (Smith, 2022).
- Managerial accounting
Managerial accounting is basically the same as financial accounting. However, it is created at high frequency, generally once a month, and it is not used except internally (Smith, 2022).
- Tax accounting
Financial accounting is the management of paying more than the income tax stipulated by law (Smith, 2022).
- Cost accounting
When you are considering price increases, and margins, companies do costing. The aim of cost accounting is to support appropriate pricing, spending, and inventory decisions, so it is important to correctly analyze the costs of all products and services. (Smith, 2022)
- Credit accounting
Credit accounting analyzes unpaid money and company liabilities to ensure that the company’s cash is not tied up in those payments. This is the most difficult accounting method (Smith, 2022).
There are many jobs that specialize in accounting. For example, certified public accountants, tax accountants, management accountants, auditors, and so on (Smith, 2022).
Why is accounting important?
- For corporate growth
Accounting allows us to grasp popular products and profits so we can think about future operations of our businesses (Fernando, 2022).
- For funding
Investors require companies to submit their financial statements in order to ascertain the soundness of the companies in which they invest. In addition, this is necessary when extending a loan to a lending institution such as a bank (Fernando, 2022).
- For debt monitoring
All companies have some sort of debt. Some have little, while others have a lot. A balance sheet allows us to see what we owe and the balance in our bank accounts at once so we can plan for future payments (Smith, 2022).
- For money collection
There must be trust between companies and customers. The company gives credit terms when collecting money from customers (Fernando, 2022).
We can also check how efficiently payments are being made on the balance sheet (Smith, 2022).
- For the reduction of tax violations and tax concerns
As our business grows, errors in reporting tax information may occur. Proper accounting can prevent reporting errors, so we won’t violate tax laws and get into trouble. In addition, accounting allows us to pay the appropriate amount of taxes (Smith, 2022).
Conclusion
Accounting is very important in business, and if we do not do accounting, we cannot stay in business for long. Accounting is difficult, but for the sake of our customers, other companies that support us, and our investors, we should acquire the correct knowledge when doing accounting. By doing so, people will be able to create a company that they can trust for a longer period of time.
References
Fernando, J. (2022). Accounting explained with brief history and modern job requirements. [online] Investopedia. Available at: <https://www.investopedia.com/terms/a/accounting.asp> [Accessed 22 November 2022].
Smith, R. (2022). What is Accounting and Why it Matters For Your Business | Bench Accounting. [online] Bench. Available at: <https://bench.co/blog/accounting/what-is-accounting/#:~:text=Accounting%20is%20how%20you%20get> [Accessed 23 November 2022].
