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Accounting is relevant in all walks of life and it’s absolutely essential in the world of business  accountants are the bookkeepers and scorekeepers of Business Without accounting a business couldn’t  function it wouldn’t know whether it’s making a profit and it wouldn’t know its financial  situation whether we know it or not we all have a stake in the profit performance of businesses  we deal with the importance of profit to employees customers investors and government isn’t generally appreciated bookkeeping the recordkeeping part of accounting must be done well to make sure that the  financial information needed to run the business is complete accurate and reliable especially the  numbers reported in financial statements and tax returns wrong numbers in financial reports and tax  returns can cause all sorts of trouble accounting EX extends into virtually every Walk of Life  you’re doing accounting when you make entries in your checkbook.

And when you fill out your federal  income tax return when you sign a mortgage on your home you should understand the accounting  method the lender uses to calculate the interest amount charged on your loan each period individual  investors need to understand some Accounting in order to figure out their return on invested  capital and every organization profit motivated or not needs to know how it stands financially  many different kinds of accounting are done by many different kinds of persons and entities  for many different purposes accounting for organizations.

And accounting for individuals  accounting for profit motivated businesses and accounting for nonprofit organizations such as  hospitals homeowners associations churches credit unions and colleges income tax accounting while  you’re living and estate tax accounting after you die accounting for farmers who grow their  products accounting for miners who extract their products from the earth accounting for producers  who manufacture products and accounting for retailers who sell products that others make  accounting for businesses and professional firms that sell Services rather than products such as  the entertainment transportation and Healthcare Industries past historical based accounting and  future forecast oriented accounting that is budgeting and financial planning accounting  where periodic financial statements are mandatory businesses are the primary example and accounting  where such formal accounting reports aren’t required accounting that adheres to cost  mainly most businesses.

And accounting that records changes in market value mutual funds.

For example  Accounting in the private sector of the economy and accounting in the public government sector  accounting for going concerned businesses that will be around for some time and accounting for  businesses in bankruptcy that may not be around tomorrow accounting is necessary in a free market  capitalist economic system it’s equally necessary in a centrally controlled socialist economic  system.

All economic activity requires information the more developed the economic system the more  the system depends on information much of the information comes from the accounting systems  used by the businesses individuals institutions and other players in the economic system some of  the earliest records of History are the accounts of wealth and trading activity and the need for  accounting information was a main incentive in the development of the numbering system we use today now I discuss what bookkeepers and accountants do mainly so you can make sure  that the information coming out of your accounting system is complete timely and accurate bookkeeping  refers mainly.

To the recordkeeping aspects of accounting it is essentially the process some  would say the drudgery of recording all the information regarding the transactions and  financial activities of a business or other organization venture or project bookkeeping  is an indispensable subset of accounting the term accounting is much broader going  into the realm of Designing the bookkeeping system establishing controls to make sure that the system  is working well and analyzing and verifying the recorded information bookkeepers follow  orders accountants give orders you can think of accounting as what goes on before before and after  bookkeeping accountants prepare reports based on the information accumulated by the bookkeeping  process financial statements tax returns.

And various confidential reports to managers measuring  profit is a critical task that accountants perform a task that depends on the accuracy  of the information recorded by the bookkeeper the accountant decides how to measure sales revenue  and expenses to determine the profit or loss for the period the tough questions about profit  how you measure it in our complex and advanced economic environment and what profit consists  of can’t be answered through bookkeeping alone bookkeepers prepare Source documents for all  transactions operations and other events of the business source documents are the starting point  in the bookkeeping process.

When buying products a business gets a purchase invoice from the  supplier when borrowing money from the bank a business signs a note payable a copy of which  the business keeps when a customer uses a credit card to buy the business’s product the business  gets the credit card slip as evidence of the transaction when preparing payroll checks a  business depends on salary rosters and time cards all of these key business forms serve as sources  of information into the bookkeeping system in other words information the bookkeeper uses in  recording the financial effects of the activities of the business bookkeepers determine and enter in  Source documents.

The financial effects of the transactions and other events of the business  transactions have Financial effects that must be recorded the business is better off worse  off or at least different off as the result of its transactions examples of typical business  transactions include paying employees making sales to customers borrowing money from the bank and  buying products that will be sold to customers the bookkeeping process begins by determining  the relevant information about each transaction the accounting officer of the business establishes  the rules and methods for measuring the financial effects of transactions of course the bookkeeper  should comply with these rules.

And methods bookkeepers make entries of financial effects into journals and accounts with appropriate references to Source documents using the source document or documents for every transaction the bookkeeper makes the first or original entry into a journal and then into the business’s accounts only an official established chart of accounts should.

Be used in recording transactions a journal is a chronological  record of transactions in the order in which they occur like a very detailed Personal Diary in  contrast an account is a separate record or page as it were for each asset each liability and so  on one transaction affects two or more accounts the journal entry records the whole transaction  in one place then each piece is recorded in the two or more accounts that are affected by the  transaction bookkeepers perform end of period procedures the critical steps for getting the  accounting records up to date and ready for the preparation of accounting reports tax returns and  financial statements a period is a stretch of time from one day to 1 month to one quarter 3 months to  one year that.

Is to determined by the needs of the business a year is the longest period of time that  a business would wait to prepare its financial statements most businesses need accounting  reports and financial statements at the end of each quarter and many need monthly financial  statements before the accounting reports can be prepared at the end of the period the bookkeeper  needs to bring the accounts of the business up to date and complete the bookkeeping process one  step for example is recording the depreciation expense for the period another step is getting  an actual count of the business’s inventory so that the inventory records can be adjusted to  account for shoplifting employee theft and so on the accountant needs to take the final step.

And check for errors in the business’s accounts data entry clerks and bookkeepers may not fully  understand the unusual nature of some business transactions and may have entered transactions  incorrectly one reason for establishing internal controls is to keep errors to an  absolute minimum ideally accounts should contain very few errors at the end of the period but the  accountant can’t make any assumptions and should make a final check for any errors that may have  fallen through the cracks bookkeepers compile the adjusted trial balance for the accountant which is  the basis for preparing reports tax returns and financial statements after all the end of period  procedures have been completed.

The bookkeeper compiles a complete listing of all accounts  which is called the adjusted trial balance modes sized businesses maintain hundreds of accounts for  their various assets liabilities owner’s equity revenue and expenses larger businesses keep  thousands of accounts and very large businesses may keep more than 10,000 accounts.

In contrast  external financial statements tax returns and internal accounting reports to managers contain  a relatively small number of accounts for for example a typical external balance sheet reports  only 25 to 30 accounts maybe even fewer and a typical income tax return contains a relatively  small number of accounts the accountant takes the adjusted trial balance and telescopes similar  accounts into one summary account that is reported in a financial report or tax return for example a  business may keep hundreds of separate inventory accounts every one of which is listed in the  adjusted trial balance the accountant collapses all these accounts into one summary inventory  account.

That is presented in the external balance sheet of the business.

In grouping the accounts.

The accountant should comply with established financial reporting standards and income tax  requirements bookkeepers close the books bring the bookkeeping for the fiscal year just ended  to a close and get things ready to begin the bookkeeping process for the coming fiscal year  books is the common term for a business’s compl complete set of accounts a business’s transactions  are a constant stream of activities that don’t end tidily on the last day of the year which  can make preparing financial statements.

And tax returns challenging the business has to draw a  clear line of demarcation between activities for the year the 12-month accounting period ended and  the year yet to come by closing the books for one year and starting with fresh books for the  next year most medium-size and larger businesses have an accounting manual that spells out in great  detail the specific accounts and procedures for recording transactions but all businesses  change over time and they occasionally need to review their accounting system and make  revisions companies don’t take this task lightly discontinuities.

In the accounting system can be  major shocks and have to be carefully thought out nevertheless bookkeeping and accounting  systems can’t remain static for very long if these systems were never changed bookkeepers  would still be sitting on high stools making entries with quill pens and ink and leatherbound ledgers accountants prepare certain basic financial statements for a business the  three basic financial statements they prepare are income statement a summary of sales revenue and  expenses that determine the profit or loss for the period just ended alternative titles include  the statement of operations and the statement of earnings inside a business but not in its external  Financial reports an income statement may be called a profit and loss statement or p&l report  statement of financial condition or balance sheet a summary of a business’s assets liabilities and  owner’s equity in order to present its financial position at the end of the period statement of  cash flows a summary of cash sources and uses for the period just ended in short business  managers at all levels from the chief executive down to the lower rungs on the management ladder  and especially managers of smaller businesses…..

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