Accounting is the art of recording, summarizing, and analyzing financial transactions. In another way, accounting is a process of accumulating, summarizing and communicating financial information. Financial information can be of different types and serve different purposes, but it’s all comes from the same function- accounting. An accounting system can be a simple, utilitarian check register, or, as with Microsoft office accounting. It can be a complete record of all activities of a business, providing details of every aspect of the business, allowing the analysis of business trends, and providing insights into future prospects. Bookkeeping is the practice of recording transactions. Bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, and they may or may not see the overall picture. Accountants use the work done by bookkeepers to produce an analyze financial reports.
Although accounting follows the same principles and rules as bookkeeping, an an accountant can design A system that will capture all of the details necessary to satisfy the needs of the business- managerial, financial reporting, projection, analysis, and tax reporting. A good accountant we create a system of financial reporting that gives a complete picture of a business. By using office accounting, you can work with your accountant to set up your accounting system to meet the needs of your business. You can then enter transactions and generate reports- all the bookkeeping tasks handsome accounting tasks such as generating reports that you might previously have relegated to your accountant.
Types Of Accounting
Accounting provides information to several groups of people and for different purposes. As a result, there are several kinds of accounting.
- Financial accounting: Financial accounting provides information to external users. Such external users can be investors, creditors, banks, regulatory bodies. Example: securities and exchange commission, internal revenue service etc. The information is usually in the form of financial statement.
- Managerial accounting: managerial accounting provides information to internal users. Search internal users include a company’s managers and employees. The information accumulated and presented by managerial accounting function includes sales figures, gross margin analysis, cost information broken down by product line etc. As a rule, managerial accounting information provides more detail than the financial accounting information and sometimes include confidential data not available to external users.
- Tax accounting : tax accounting can be distinguished as another kind. Tax accounting deals mainly with calculations of taxes. Example: income taxes, sales and use taxes etc. Because rules regulating calculation of taxes are different from those governing financial statements preparations and presentations, tax accounting should be performed separately and in parallel to financial aid managerial accounting, usually there is a tax department with a company that deals with tax accounting, but works closely with the financial accounting department.
Recording, Summarizing, Reporting, And Analyzing
Recording transactions includes documenting revenues ( by invoices or sale receipts), an entering purchases (in payable account) an expenditures (in the check register). Using office accounting, the small business owners can move beyond daily recording to higher level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow. Calculating and summarizing transactions in a traditional accounting system is tedious process. Microsoft office accounting frees you from these repetitive tasks by calculating and summarizing hundreds or thousands of individual transactions and generating reports to satisfy managerial, governmental, investing or banking needs. Based on a generally accepted standard, these reports are powerful tools to help the business owner, accountant banker or investor analyze the results of their operations.
Double-Entry Accounting
Since the fifteenth century, when Luca Pacioli first route about the practice, the term “accounting” as referred to double entry account. Double entry accounting uses a system of accounts categories transactions. Each transaction that is entered consists of one or more depth and credits and the total debits must equal the total credits. For example, if you purchase a car with a down payment of $1,000 and a loan from your bank for another $14,000, the entries to record this transaction would be the following:
- A debit of $15,000 to your fixed asset account name, for example, “Vehicle”.
- A credit of $1,000 to your bank account for the down payment
- A credit to an auto loans account for $14,000.
- The entries balance because the $15,000 debit is equal to the sum of the two credits.
Illustrative Example
If you’re not a bookkeeper or an accountant, the whole system of debiting certain accounts and crediting others can seem reversed. A credit from the bank will increase your checking account balance on the banks books. Bank account are assets on your books, so you will record a debit ( see the following table) so you’re checking account why the bank records a credit to it liability account.
If debits and credits seem overwhelming, don’t be discouraged. Office accounting uses double entry accounting; however, the debiting and crediting to various accounts is done for you. You enter transactions and office accounting will calculate an enter the debit and credits. Because you have freed from thinking about the beats and credits, you can focus on the accounts used to summarize and categorize transactions.
Office account in focuses on individual transactions. The user enters transactions on forms that represents paper documents, using accounts to categorize transactions. Selecting an account on the transaction from dictates how office accounting applies debits and credit, summarizes transactions and which information is included in reports. Each transaction that is entered must be in balance; by accepting only transactions that are in balance, office accounting keeps the balance sheet and the accounting system in balance.
The Five Account Types
Double-entry accounting uses five and only five account types of record all the transactions that can possibly be recorded in an accounting system. There are sub-types of the following list, but all financial transactions can be recorded using this five types of accounts. The five accounts types are the following:
Balance Sheet Accounts:
- Assets: things of value that is owned and used by the business.
- Liabilities: Debts that are owned by the business.
- Equity: The owner’s claim to business assets.
Profit and Loss Accounts:
Revenues: The account earned from the cell of goods and services.
Expenses: Costs incurred in the course of business.
You most select the proper account types when entering a transaction. Using an incorrect account type can result in a report that is incomplete or that makes no sense. The balance sheets accounts are permanent accounts that carry a balance from here to year, like checking accounts, account receivable, an inventory accounts. The profit and loss accounts are temporary accounts which track revenues and expenses for a year long fiscal period and are then closed, with balances transferred to an equity account. Using an asset, the ability or equity account type for a revenue or expense transaction will result in a report that is incorrect and improper