What is Accounting?

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If you want to start up your own business, then you need to at least know the fundamentals of some of the more basic concepts you will have to face. Getting a business on its feet and making sure it is successful and ever-expanding is a though job, and there are numerous factors and challenges you will have to deal with. Besides knowing how to develop a business plan, a financial plan, and other managerial and marketing tasks, you need to know how to deal with the ultimate scope: the money. Whether this is your own ultimate goal or not, business revolves around money, and it is based on it. Thus, you have to know about the money you invest initially, about the profits you will make, about tax and employee payments, insurance quotes and so on. The field that deals with all these aspects is accounting. So what is accounting?

Of course, most people hire trained accountants who can easily disentangle the multitude of numbers you have to deal with, but leaving it all on the shoulders on an employee is not a good idea. Even though your accountant will deal with the actual crunching of the numbers, you need to at least be aware of what is going on, and to understand everything that happens. For those who wish to understand better what is accounting, we have a few tips and information. To begin with, know that accounting doesn’t deal only with the money part of the business, but it is meant to account and account for any type of activity and information within an organization.

Thus, accounting or accountancy deals with producing information about an organization and with transmitting that information to the people or departments who need it. It is indeed true that this communication usually takes place under the form of financial statements; the money must be presented as economic resources that management can control. The difficult part of this activity is deciding and being able to discern which information is relevant, and presenting that information in a faithful way.

When asking what is accounting, one can also answer by mentioning the three main activities it is divided in: bookkeeping, accounting and auditing. Accounting has changed a lot in the twenty-first century because numerous technological advancements and innovations have simplified certain tasks that took up a lot of time and resources. A good example are enterprise resource planning software systems, which help manage the value chain of companies. Aspects like purchasing, manufacturing, retailing or human resources are centralized into one program, so management can use all the information at once to tell whether they’re going in the right direction. To put things into perspective, an ERP can replace up to 200 separate software programs by doing all their jobs at once.

So what is accounting more precisely? Well, the basic equation is equity + liabilities = assets. The balance sheet of an organization’s accounting has to mention the income statement first and foremost, and this is divided into two sides: revenues and expenses, which translate into net income and net loss. We hope this information will be useful to you and that it will help you start learning more about this aspect of your business.

November 2017
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