Accounting
Accounting — a process of fixing a cash flow related to a certain business. Such a process includes control over profits and losses, calculation of tax returns, and communication with the financial regulators and tax authorities. All these processes are carried out by the professional accountant and fixated in the financial statements.
Accurate financial statements are a crucial thing for the proper work of business because these reports show the current situation in a company, help to exclude wasteful spending, and plan the budget for several months ahead.
Goals of Accounting
Creation of budget. A budget surplus is a key factor in the financial stability of a company. The budget helps to elaborate the financial strategy, save money and survive the financial crises. Accounting helps to maintain the financial records to fixate the transactions and trace the cash flows.
Obtaining loans from a bank. To receive the credit from a bank the business should prove its financial sufficiency and business solvency. A good accounting system helps to present profits and liabilities and reflect the movement of the funds.
Decision-making. The financial decisions are always made considering the actual budget and financial forecast. Accounting maintains the financial paper of a company and saves all important data. After analysis and interpretation of this data, it is easier to make the right decision.
Information for stakeholders. Accounting provides the financial data for all persons and entities which may be interested in cooperation. This data may be interesting for the investors, customers, partners, employees, debtors, creditors, and financial authorities.
Financial control. The regular monitoring of profits and losses helps to monitor the main expenditures and identify the inappropriate expenses. The working accounting system helps the business to escape the money drain and maintain financial health.
Types of Accounting
There are two main classifications of accounting. The first classification is related to fields that require documentation and financial analysis. The second classification depends on the way a company provides accounting services (for internal or external needs).
Classification of Accounting according to the field of application:
- Cost Accounting — a process of documenting, analyzing, and reporting the manufacturing costs. A cost accountant tracks the current costs and draws up a company’s budget. The analysis helps the management to create a long-term trading strategy. The various costs involved under cost accounting are material, labor, and other expenses.
- Financial Accounting — a process of documenting, analyzing, and reporting the transactions for a particular period. It is necessary to create the proper financial strategy and to ensure compliance with all internal procedures.
- Managerial Accounting — a process of making the strategic plan of business development. The collected data include information from all departments of a business. This information is usually designed for internal use.
- Tax Accounting — a process of maintaining the accounting documents according to the current tax legislation. Such an accounting helps to monitor the inflows and outflows and provides the possibility to track the funds.
- Forensic Accounting — a process of investigation of the financial documentation in a company. This process is necessary to regulate the documents.
- Governmental Accounting — a process of financial planning and allocation of funds within the government. Such a process should comply with the regulations concerning the federal accounting standards.
- Audit — a process of analyzing the financial documentation of a third company to verify the quality of its accounting reports.
- Accounting Information Systems (AIS) — a system that collects, stores and processes the financial documents of a company.
Classification of Accounting according to a way of service delivery:
- Public Accounting — is a business practice when the company provides accounting services to other entities. The company may provide a wide range of services or specialize in the field (maintenance of internal documentation, auditing, consulting).
- Private Accounting — is a business practice when the company provides accounting services for internal use. A private account is responsible for making the reconciliation reports, payroll calculation, and distribution.
