What Is Accounting In Business?
What is accounting? Accounting is an essential tool to evaluate a company’s various business transactions, liabilities, assets and funds. It’s a proper way to report, organize and interpret all the important financial data of a company, from day to day financial records to the generation of annual or periodic financial reports. The aim of accounting is to make things easier to understand for decision-making purposes. The use of accounting software enables businesses to make effective use of accounting in business.
Businesses use accounting information to make informed decisions on how to manage their finances, to increase the profitability and to reduce risk. All managers in any organization need to be familiar with the principles, concepts and goals of accounting in business. They also need to understand and compare information that are related to their organizations and the external environment. This will help them make sound decisions on what is accounting in business.
The process of accounting helps managers determine the direction and magnitude of any managerial program or effort and its effect on the financial health of the organization. This is because it informs them how well their program is working and what needs to be changed or improved in order to achieve better results. Accounting has a broad scope because it includes different types of accountancy practices such as bookkeeping, management, financial accounting, management accounting, cash flow, internal control, preventive control and auditing. All these practices have a significant part in determining a company s financial health.
Bookkeeping refers to the collection of accounting information that enables managers to understand and plan the allocation of resources within the organization. It is an essential part of every business activity and is usually done by a person known as an accountant. A bookkeeper is charged with providing the necessary accounting information required by the managers for their management. Thus, one can say that bookkeepers play a very important role in what is accounting in business.
Management accounting information is provided by accountants to employees, customers, regulatory authorities, managers, shareholders, owners and creditors for the purpose of understanding the operating, financial and other performance aspects of the business transactions. Financial accounting information is mainly concerned with the reporting of actual financial transactions during a period. A manager preparing reports for the purpose of analyzing the business or a statutory audit must have reliable accounting information to prepare accurate reports. Such information form the essential input for any successful business transaction.
Auditing or tax accounting is another type of accounting that involves the scrutiny of managerial accounting to check whether there has been any improper entry or loss or whether there has been any fraud or any erroneous calculation or any non reporting transaction. While tax accounting concerns itself with the internal accountant’s report on a company’s financial activities it is quite different from the managerial accounting which is concerned with the preparation of reports that would be of great importance for a company’s management. The reports prepared by these two different accounting departments are required to be inter-changeable.
Businesses often encounter problems related to finance and accounting. They play an important role in determining the profitability of a particular venture. For this reason, they face lots of problems like fraud, errors, misinterpretation, overstatement and understatement. The aim of a finance accountant is to ensure that the financial statements of a company are correct and all financial reporting standards are met. They are required to develop a sound methodology for management accounting, planning, financial assessment, auditing and risk management. To perform these responsibilities satisfactorily, an accountant needs to have the appropriate training, experience and knowledge in the various techniques and tools used in accounting.
Many business organizations are shifting their attention from relying on traditional methods of bookkeeping to using financial accounting software. This is because using such software provides a convenient, transparent, systematic and error free method of recording financial transactions. It also makes easy access to financial accounting information. The advantages include: controlling frauds, monitoring and analyzing business operations, budgeting, forecasting and monitoring cash flow and investing. In addition, it helps to reduce errors and make auditing, compliance, and reporting easier.