Modern Day Accounting : Subject to Technical Issues

Modern Day Accounting : Subject to Technical Issues

Gone are the days when a successful career was based on the amount of money spent on a child’s education. Talent and hard work are the traits required to forge a relatively decent career in any industry. It takes more than just money to survive in the corporate world. Only those truly succeed who have worked hard and truly identify their true potential at a relatively younger age. Commerce education is on the boom nowadays. Apart from engineers, commerce graduates are aplenty in India today. This short course on accounting is suitable for not just students but for small business owners as well who wish to equip themselves with the basic knowledge of day-to-day accounting. While traditional accounting topics like credit, debit and tax-filing are all quite well versed by the vendors today, the modern-day techniques are something they are still missing out on. This guide will cover topics like balance sheet, cash flow statements and lastly the P&L. Finance and accounting remains the backbone of every organization. It is imperative that business owners are well versed with such techniques as the current market is an already a competitive one. Apart from businesses, accounting also remains to be an appealing profession for job-seeking individuals.

Crash Course: What does it mean?

Today’s learners lack the patience for pursuing courses which are lengthy in their time-duration. In order to cater to this problem, short duration courses, also called as 'crash courses'  are specifically designed to impart the basics of any topic in a rather more direct and focused way. Instead of going around the bush for any topic, a quick and more concise approach is maintained. A crash course on accounting lets you understand the subject from the grass-root level and introduces you to basics such as taxation, accounting statements, cash flow diagrams, liabilities and assets etc. to name a few.

INTRODUCTION

What do you mean by the term 'accounting'?

Accounting is a rough approximation for the groundwork and handling of all the money and banking related issues which are pertaining to any organization, be it big or small. The concept of accounting has been there for centuries altogether. It all began ever since the concept of money came into existence. Humans in the earlier times also knew that there is a need for a proper system to keep records of money which is both incoming and outgoing. Bookkeeping was prominent in civilizations such as the Macedonians, Egyptian Civilization and most prominent among the Romans. Rulers such as Augustus of Rome kept close tabs with the accounts of his treasury. Any sort of mismatch in bookkeeping was a straight death sentence to the treasurer. In those days, accounting of transactions was a mandatory part of every kingdom. Treasurers had to become familiar with the basics of accounting and related topics to handle vast amount of bookkeeping data, all single-handedly. Nowadays, it is only limited to people or businesses which have some prior knowledge of accounting. Whereas, there are instances when accounting is not even a part of the organization.

Modern-day accounting was brought into existence by the great Italian mathematician Luca Paciolo in 1494. As the years passed, more and more developments were brought into the subject and it evolved as the years passed. The late 19th Century witnessed a transition of accounting into a full time organized profession. It started to associate itself with local bodies such as “The Institute of Chartered Accountants of Wales and England.” Modern day business activities run on the basis of a language. A language which is used amongst the organization's members. This language is nothing but “Accounting”. It is used by people such as money lenders, creditors, regulators etc. Accountants are none other than the people who exercise accounting as a profession. Accounting has many synonyms such as “Financial Accounting”, “Money Management” etc. to name a few.

Accounting, as a subject, can be broken down into:

  1. Tax Accounting
  2. Auditing
  3. Financial Accounting
  4. Cost Accounting

Financial accounting refers to the practice of reporting a company’s monetary transactions. Accountants prepare reports on the money flow and it is such reports which forecast the financial health of the organization. External parties gain access to such reports for processes like external auditing etc.  Data management or analytics is the key to maintaining healthy financial records. 

What is meant by Financial Accounting?

As aforementioned, financial accounting is used to impart necessary financial reports to external entities such as income tax department, banks, auditors etc. This also helps maintain transparency with the government and other related organizations. Financial statements, also called as statements of income and balance sheets, are an indicator of the way activities take place in an organization. Financial accounting is based on a number of specific concepts. Some of these concepts are:

  1. Cost Concept
  2. Accounting period Concept
  3. Dual Aspect Concept
  4. Disclosure
  5. Matching concept
  6. Realization Concept etc.

The above-mentioned concepts will be discussed in detail as the subsequent lessons are introduced. What makes financial accounting so significant? It is most often used for external reporting and helps control various policies of an organization. These policies are often related to departments such as sales, marketing, sales for casting etc.

However, it suffers from a few downsides as well. Financial accounting is very conjoined in nature. Financial reports do not indicate a department-wise breakdown of the data. Hence, it becomes difficult for evaluating the financial performance of different departments. It also does not assist in identify the cost behaviour of a firm as it treats fixed and variable costs as the same. It is often fixed for a specific time and doesn’t leave any future scope for future for casting.

Major business decisions can be company expansions, buying or selling shares, addition or discontinuing of a brand or product, production line etc. Financial accounting does little to contribute to such business decisions.

Despite the drawbacks, it does holds its importance. It provides a basis for other departments to function. The reports generated are further analyzed as per the requirements of the major decision making stakeholders.

What is Management accounting?

Also referred to as "Custom-Made Accounting”, management accounting provides the necessary information which can be utilized for policy making and to oversee the daily operations of an organization. The data is displayed in an organized and meaningful manner such that it imparts all the necessary information which is essential for decision makers. Its basic function is to assist in planning and control. It also provides a comparison between ideally planned performance levels and actual performance levels. This helps in identifying the prospective weak spots and the concerned people can take decisions to correct them.

It is a very forecast oriented method of accounting. It focuses more on activities that could happen in the future and not those which have already taken place. The duration of the reports can be both long-term oriented or short-term oriented. This again depends on the requirement by the decision makers. Finally, the reports can be produced for a complete organization as a whole or, if required, be segregated into a departmental wise breakdown. This is something which financial accounting fails to do.

What is Cost accounting?

Before any major business decision takes place, costing is the main area of focus for any business owner. Costing enables a business to identify what particular product they wish to acquire would cost them. Costing isn’t limited to just products, but to operations and functions as well. The technical term associated with costing is “cost-analysis". It can be defined as the process of gathering the required costing data of a particular product or a certain activity. The product/ service for which the costing data has to be found out are called as “ Cost Centers”. The main motive of cost analysis is to gather a complete cost breakdown of various departments, processes, jobs, services, products, campaigns etc.

It is closely associated with revenue based decisions which completely rely on cost analysis. These decisions can be in the form of selling price, business expansions, replacement decisions, inventory control, etc. Hence, the major functions of cost accounting can be broken down into three simple fragments:

  1. To Determine Costs
  2. To Facilitate planning
  3. To control Business related activities.

Does it have any advantages over financial accounting? The answer to that is yes. Cost accounting helps an organization segregate profitable and non-profitable activities and products. This also has a direct influence on the methods of production implemented. It’s always a wise idea to choose the economical option over the expensive one. Cost accounting helps in deciding just that. This has a direct effect on whether a company can attain a certain profit or loss over a specific product. Cost accounting also helps formulate alternative plans of action for a specific process. It also helps to make decisions when the market becomes challenging in terms of low demand, competitive prices and evolving technologies. These alternatives are analyzed and evaluated based on the data generated by the costing analysis. In simple terms, it helps ensure efficient use of available physical and human resources.

CHAPTER ONE

INTRODUCTION TO ACCOUNTING

In this chapter, we shall be discussing the basics of accounting such as financial reporting and some other basic accounting principles. They are as follows:

  1. Monetary Unit Principle

According to the monetary unit principle, a company publishes all of its financial details using a single currency unit. This currency unit may be the US Dollar, Pound, Yen, Euro etc. The key is to choose a unit which undergoes lesser inflation changes over a period. So far only the US Dollar has been the most stable of currencies over the past few decades.

  1. Going Concern Principle

According to the going concern principle, an entity is said to be in existence until the end of the current accounting period and no external factors, whatsoever, shall hamper its existence. This principle also states that the company can only be ended by dilution and by no other means. A company is said to be going concern if it has a long life and is expected to continue functioning. But a company that is expected to close soon cannot be considered as going concern. If the going concern concept didn't exist, companies wouldn't be able to cover their day to day expenses. How can we expect the company to pay its expenses if we don't assume that it will exist soon? Companies will continue to generate financial reports based on the assumption that a company is going concern, unless or until the owners decide to liquidate or completely halt all operations of the firm.

  1. Principle of Conservatism

There are instances when you will have to bookkeep a particular transaction whether it is a revenue or an expenditure. But the dilemma arises when you have to estimate what the or forecast a future revenue amount is. One cannot be sure whether the payment will be received in full or in fragments. The conservatism principle states that while recording uncertain financial records, one should mull over the fact of recording an uncertain loss rather than recording an uncertain gain. By this principle, we lower the net asset amount on our balance sheet and lower the income amount on our net income statement. On a whole, it leads to a decreased profit amount being recorded on a company's financial statement.

Why should a company be conservative? In case a third person is viewing your financial statements from the outside, he/she will make sure that a company isn't overestimating their profits. This is often misleading and could have dire consequences if the promised profit isn’t delivered. Hence, it’s always safer for a firm to keep their financial records as conservative as possible.

  1.  Cost Principle

The Cost principle is one of the most underlining concepts in accounting. It states that when an asset is purchased at a particular period of time, it holds an original purchase rate. This rate of purchase automatically becomes the value of that asset. If an asset is useful for X years and depreciates at a certain rate of depreciation. The original recorded value of the asset remains at Original purchase rate minus net depreciation till date.

If the asset a company holds, is available in the market at a quoted price, the historical cost may be replaced by the quoted market price.

CHAPTER-2

THE INCOME STATEMENT

Another essential element of accounting is the concept of Income Statement. An income statement is nothing but a monetary statement of a company over a specific period of time. This period is called a fiscal year. The overall performance of a company can be assessed by using an income statement. How the revenues and expenses are managed by a company are indicated in an income statement.

It is also called as a Profit and Loss statement, or in short, a P&L statement. A company releases an annual report every year. An income statement is one of three most important elements of the annual report, with the other two being balance sheet and cash flow statement. An income statement can be divided into two segments:

  1. Operating portion

This part of the income statement expands information pertaining to revenues and expenses that are a direct by-product of the day-to-day operations of the company. For example, if a company decides on selling smartphones, the revenue which it generates through direct sales of its smartphones can be treated as a part of the operating segment.

  1. Non-Operating portion

The non-operating portion of an income statement also expands information pertaining to revenues and expenses of the organization. However, these revenues and expenses are not directly linked to the daily operations of the company. For example, if a beverage company decides on entering the real estate segment, the sales it makes from the latter segment can be listed under the non-operating section of the income statement.

What are the most important elements of an income statement?

However, most companies will have the following elements in their income statements:

  1. Revenue and Cash Inflow

  • Revenues from primary activities
  • Revenues from secondary activities
  • Indirect gains
  1. Expenses and Losses

  • Expenses in primary activities
  • Expenses in secondary activities
  • Overall Loss
  1. Net Profit or loss (If any)

CHAPTER 3

THE BALANCE SHEETS

In accounting, balance sheets represent a statement of financial transactions of an individual or an organization. It is applicable to any kind of firm, be it a sole ownership, private limited organization etc. It is also called as “statement of financial position”. It is a very comprehensive document which furnishes the exact financial health of a company at a specific period of time, say at the end of the financial year.

A standard balance sheet consists of two important parts. In the left side of the document, the Assets are listed. The second part is for financing, which is accommodated on the right side. The finance section itself has two subparts, namely- ownership equity and liabilities.

How do we read a balance sheet? One common way to look at a balance sheet is total assets is the total liability plus the equity of the company/owner. 

Once the accounts for both profit and loss are prepared, the remaining amount can be termed as trial balance. This represents personal or real accounts. In more simple terms, they represent assets or liabilities which existed on a certain date. An excess of assets in comparison to liabilities can be labelled as the net capital. The net capital is an indicator of the current financial health of the company. The most important element of a balance sheet is that it shows the specific sources and finally the correct application of a company’s capital. It is more of a statement rather than an account. It is prepared using real and personal accounts. The assets on the left-hand side of the balance sheet can also be coupled with a complete description of the company’s capital sources. The right-hand side can be used to describe exactly where that capital has been used. The complexity of a balance sheet increases as the size of the organization increases.

Some basic definitions involved in the concept of balance sheets are as follows:

Personal Balance sheets: These are the types of balance sheets which are used by individuals to account for current personal assets such as savings, real estate and common stock etc. Apart from the assets, liabilities such as existing debts, loans, overdue etc. are all listed as well. The net worth of an individual is the total assets minus the total number of liabilities. This is an indicator of the financial worth of an individual.

Assets

 Anything of value which would add to the total net worth of an individual can be termed as an asset. An asset could be of any form. Be it in simple cash form or a real estate form. An asset can take the form of a property, a patent, equipment, long-term loans given to others or livestock and animals. Current assets are those which are present in monetary form. Cash inventories can be treated as current assets. Some other notable forms of current assets are prepaid expenses for future utilization, inventories, petty cash etc. to name a few.

Liabilities

A liability is something of a financial burden on an individual. It lowers the total net worth of an individual if not settled earlier on. Liabilities come in various forms; accounts which have not been settled can be termed as a liability, deferred or unpaid tax, undelivered services of the company which the customers have already paid for, but haven't been delivered to them yet are all liabilities. Another major component is the interest on existing loan stock. 

Equity

Equity is nothing but the total assets minus the total liabilities. However, one must note that shareholders equity is a completely different topic. It is the money the company owes to its shareholders. In ideal cases, the net shareholder's equity must equal total assets minus total liabilities.

Characteristics a balance sheet

The basic characteristics of a balance sheet are as follows:

  1. A balance sheet represents a statement and not any sort of account
  2. The information imparted by a balance sheet is true for the period it’s been prepared for.
  3. It is also an indicator of the nature of assets of the company. It also describes the nature and value of liabilities as well.

CHAPTER 4

ASSETS

As discussed earlier, an asset is nothing but anything which holds value. An asset can be in any form. It can be in the form of an investment or  in the form of money.

Assets are controllable by nature. They can be both tangible and intangible. In simple terms, assets represent a value of ownership by an organization. The value can later be transacted into cash. An asset is also something which can be passed on from one entity to another.

What are the basic characteristics of an asset?

  1. An asset is something which can be controlled.
  2. An asset must hold a certain monetary value.
  3. It experiences depreciation over a period of time.
  4. It must carry with itself a maintenance or a repair cost.
  5. It must hold a useful lifespan. This can be a rough estimate, but it should be expected that the asset will fall down in value post elapse of thus estimated time.
  6. Once an asset Is past its useful phase, a company will always look to scrap or get rid of it. The value at which it is scrapped is the scrap value of an asset. An asset must always carry with itself a fixed scrap rate.

The various types of assets are:

  1. Fixed assets

Assets which have been purchased for the sole purpose of assisting in the basic business operations of the company can be termed as fixed assets. They cannot be easily converted into cash form during the normal course of business operations. Some examples of fixed assets are land, machinery, furniture, buildings etc.

  1. Current Assets

A current is the type of asset which can be easily be converted into cash in the next one year. Some of the examples of current assets are cash equivalents, inventories, prepaid expenses and marketable products and services

  1. Tangible Assets

These are the assets which are tangible in nature. They can be felt, touched and seen. Some of the examples of tangible assets include machinery, cash, stocks etc.

  1. Intangible assets

The assets which cannot be touched or seen but certainly hold a monetary value can be called as intangible assets. Notable examples include trademarks and patents.

  1. Fictitious Assets

These are not exactly real or tangible assets. In simple terms, they are not represented by any sort of tangible possession. They are included as part of a balance sheet in order to counter a specific debt balance on the liability side of the balance sheet. For example, a provision made to provide discounts to suppliers, share discounts etc.

  1. Wasting Assets

The type of assets which get wasted or replenished over a period of usage. Their value depreciates over the years and finally becomes exhausted.

  1. Contingent Assets

A contingent asset comes into existence only after a certain period of time. By time, it is meant that an event takes place and then the asset finally becomes available for possession. This can be better understood by taking an example of a sales agreement. The property can be treated as an asset only once the sales agreement comes into force. These assets may or may not be treated as part of a balance sheet.

CHAPTER 5

LIABILITIES

As the name suggests, a liability is nothing but an obligation or an added weight, which is added to a company's balance sheet. These are monetary figures which arise when certain debts are owed to other parties. When a company purchases material on credit, the payment gets added as a liability. Liabilities are recorded on the right-hand side of the balance sheet. Some of its constituents include unpaid tax bills, money owed to creditors, mortgages, loans, accrued expenses etc. to name a few. Other common examples of liabilities include loans payable, bonds payable, interest payable, wages payable, and income taxes payable. Less common liabilities are customer deposits and deferred revenues.

Liabilities are not always negative. It should be noted that it is the liabilities which keep the business operations of a company running on a daily basis. It is the liabilities which aid in attaining a certain profit. In ideal terms, a liability can be seen as a short-term obligation on an organization. However, if the liability remains unpaid for, for a longer duration of time, this could turn hazardous and could prove to be a long-term threat to the stability of the company. Increasing interest rates also add to the burden of long-term liabilities.

 Some of the different types of liabilities are discussed below:

  1. Long-Term Liabilities

These are the type of liabilities which are not payable within the current accounting period but can be paid in the forthcoming accounting periods. A certain time period for payment is agreed between the parties involved. Some common examples of long-term liabilities include Public Deposits, Bank Loans etc.

  1. Current Liabilities

Any liability which is repayable within the current accounting year itself can be treated as a current liability. Some notable examples are trade creditors, short term loans etc.

  1. Contingent Liabilities

This is the type of liability which actually doesn’t come into existence unless or until a certain event forces it to do so. They become liabilities in the future following a series of events which take place. It is never a part of a balance sheet as it is not an actual liability. However, they are mentioned alongside the footnote section of the balance sheet at the bottom.

CHAPTER 6

THE INVENTORY

Inventory is nothing but the stockpiling of goods and services. An inventory of any organization includes raw materials, spare parts, consumables, finished goods, unsold products etc. to name a few. After fixed assets, total inventory value accounts for the largest value mentioned in a balance statement. Inventory control and inventory valuation is an important task for an accountant. The values generated by inventory valuation is considered to be accurate. They are further used for generating financial reports and statements. It is seldom noticed that these reports do not carry with them the complete, actual information when it comes to inventories. Factors such as depreciation are not taken into account. This is mostly because there are a number of inventory valuation methods at the accountant’s disposal.

 As per the International Accounting Standard-2 (IAS-2), Inventories can be referred to as tangible property which is held:

  1. For sale over a period of time
  2. Which is still in the process of production
  3. In the form of raw goods which will be utilized to manufacture the final product.

In a nutshell, inventory goods refer to stock of raw materials and their components, goods which are under work in progress and also finished goods etc.

OBJECTIVES OF INVENTORY VALUATION

Why do we need to value inventory? Following are the objectives of inventory valuation:

  1. For the determination of Income

Inventory valuation helps in assuring a fair price of the finished good or service. Before setting a selling price, companies will work out on the total manufacturing costs involved which also includes inventory costs as well. Hence, to achieve a tidy profit, inventory valuation has a huge role to play. However, it does help in avoiding a possible overvaluation of a product and at the same time, it also helps in avoiding a possible undervaluing of the product as well.

  1. For the determination of current financial position of the firm,

it has already been discussed that “Inventory” section can be found on the balance sheet. It cannot be overlooked. It is treated as a current asset at the end of the accounting period. There may be chances that the inventory valuation is incorrect and improperly valued. This in turn will affect the total readings of the balance sheet which in turn affects the final net worth of the company. It is always imperative that the values be fair and accurate as external parties gain access to the reports. Hence, while valuing an inventory, it is important to double verify and reevaluate the inventory time and again. The task should be carried out by a responsible officer and he should make sure that stock figures match with the figures on the registers. Finally, test checks must be carried out to ensure high accuracy of the entire valuation process.

METHODS OF RECORDING INVENTORY

Some of the different ways of recording inventory are as follows;

  1. Periodic Inventory System
  2. Perpetual Inventory System

Periodic Inventory System

The basic principle used in this method is by physically counting the stock at the end of every fiscal year. This method becomes very tedious especially when the size of the organization increases. Sometimes the physical counting may carry on for more than a week at a stretch. Certain items are counted, while certain items are weighed out. The data is maintained using stock sheets. Particulars such as the number of items, unit price, total value etc. are all part of the stock sheet. It is a simple yet effective method and hence erases the necessity of maintaining various records under the perpetual inventory system. However, the major drawback of this method is that theft, losses, wastage etc. are not accounted for and will never be brought to attention.

Perpetual Inventory System

In this method, the inventory records are updated each and every time there is a movement of products both in and out of the inventory. A system of inventory ledger is maintained where the necessary data needs to be entered every time a part is used or added. The ledger gives an idea of exact movement of the goods, current work in progress and finally the final number of finished goods in the inventory. Since this is a continuous verification process, any discrepancies like losses, thefts etc. can easily be identified and the necessary actions can be taken immediately. The most notable advantage of this type of inventory system is that exact details of the stock can be accessed at all times. These are the updated figures and hence provide a basis for control. However, owing to the complexity and demand of the system, it is quite expensive to maintain.

CHAPTER 7

THE CASH FLOW STATEMENT

Cash flow statements form an important backbone of a balance sheet. It is a financial statement which shows the exact flow of money in and out of the company and in turn specifies how it affects the final balance sheet. The type of cash related activities are segregated into operating expenses, investments and finally financial activities. It is a sort of a short-term analytical tool which helps determine the current ability of an organization to pay its bills. It also provides an overview of a company’s assets and debts. The gap between the two is bridged as a cash flow statement shows how much cash is generated or spent on activities such as operating, investing and financing.

Who are the people interested in cash flow statements?

  1. Accounting personnel, who are interested in knowing whether a company is able to cover its basic expenses or not.
  2. Company financers and creditors, who are also interested in knowing whether the company can pay off its basic bills or not.
  3. Potential Investors, who are interested in knowing whether the company is worth investing in or not.
  4. Prospective company employees, who wish to know whether a company can afford to pay its employees well or not.
  5.  Potential investors who want to know whether it’s worth investing in the company or not.

Why do we need cash flow statements?

A cash flow statement is an executive summary of the financial resources and liabilities at a particular point in time. 

  • When coupled with income statements, they are both used by companies to match the total revenues with the costs incurred in order to generate that revenue. It involves both inward and outward cash flow from the organization.
  • It is used to determine a company’s liquidity and also its ability to handle future cash flows.
  • It is also used to impart additional information when it comes to changing assets, equity and liabilities.
  • It is also used to successfully forecast the timing of future cash flows.

Cash flow statements remain to be one of the most commonly used tools to determine the financial health of an organization, and this is due to its standard nature and its ability to eliminate allocations which might have been derived from other accounting techniques.

CHAPTER 8

FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is the process of reviewing a firm’s financial reports to determine the correct financial health of an organization. The statements which are reviewed are as follows:

  • Income statements
  • Cash flow Statements
  • Equity Change Statements
  • Balance Sheets

It is used by a number of stakeholders such as:

  • Creditors
  • Share Holders
  • Potential Investors
  • Government
  • Company Board Members

Some of the most commonly used Financial Statement Methods are:

  • Fundamental Analysis
  • DuPont Analysis
  • Vertical and Horizontal Analysis
  • Financial Ratios

Basic Definitions

Horizontal Analysis: By this method, past financial reports are compared with the newly generated report. The past reports could be of previous financial quarters or even years. Variations in income and revenue are calculated.

Vertical Analysis: It is referred to as a percentage wise analysis of financial statements.

Financial Ratios: They are powerful ratios used to perform quick financial analysis of an organization. Some of the most commonly used financial ratios are Liquidity Ratio, Profitability Ratio, Activity Ratio and Leverage Ratio.

DuPont Analysis: It uses multiple financial ratios which when multiplied with each other results in the return on equity. Return on equity is the ratio between total income earned by the total amount invested.

SUMMARY

The contents of this course are just a very few of the vast number of topics related to accounting. An accounting job is one of the most sought-after jobs in the industry today. Accounting has a very crucial role to play in any business. Accounts graduates are one of the most sought-after candidates in the job market as well. It is not necessary that a person with only a commerce background can become an accounting. Today, engineers as well are getting really at finance and hence the competition for jobs is ever increasing. It is important for an accountant to have a strong grasp on the basics of accounting and this crash course helps in brushing them.

This can be done with the help of hundreds of courses online. Courses can range from long-term courses to short-term ones. These courses can also be tailor made to your requirement depending on which particular topic you would like to focus on. With these courses, the quality of accountants in the market will certainly increase.

CONCLUSION

In conclusion, accounting finds its applications not just related to big organizations only. Small businesses and even individuals can make accounting a part of their lives. Accounting is in itself regarded as the modern-day business language. It involves rigorous analysis of financial information which is finally compiled into a report form. It is the number which does the talking. It's either a profit or a loss at the end of the day. The information generated is very reliable, and in case any doubts arise, there are financial reports for every doubt. In simple terms, the Data out there certainly makes sense.

In today’s competitive world, it’s all about modernizing the existing old-school systems. This is done to keep pace with a rather dynamic environment in terms of technology. Accounting systems are a part of almost all types of business out there, such as schools, universities, multinational companies, small business owners, charitable organizations, government organization. The list is endless and will continue to grow as time goes on.

What makes accounting beautiful? Every company follows a certain set of rules and regulations which are followed by each and every organization. These rules are to be strictly followed when it comes to financial reporting. Over the years a number of accounting principles have come and gone. Some of the most accepted principles are:

  • foregone consideration
  • revenue recognition
  • matching
  • consistency
  • objectivity.

Firms which have successfully adopted these accounting principles can compare themselves to other companies in the market. This increases the quality of the industry and also makes room for healthy competition in the market.

It is also essential to know that these reports are not for just personal use. External entities utilize for auditing purposes as well. In many cases, the outcome of an audit determines the future of an organization. Auditing is important to firms because it ensures that stakeholders know that the money invested is leading to something fruitful and is not being wasted. Auditing also ensures that there is no room for financial fraud in the company, which is a cause of concern in today’s business world.

Accounting continues to give a number of advantages to firms which have adopted it into their system. Even small-scale business owners will be able to identify whether their business is doing well or not. If things aren’t too good, changes to existing problems can also be brought into effect. Accounting is all about consistency and reliability. With a number of modern-day accounting techniques at their disposal, accountants find it very easy to generate crisp and tamper-proof reports. In short, the quality of accounting techniques is on the rise.

Hence, it is important to keep a strong hold on the basics of accounting. This crash course is not the end of the knowledge on accounting, but it certainly covers all the necessary basics needed for both professionals and also new learners out there.