Accounting keeps track of the financial transactions of a business. It is important for a business’s record-keeping, general management, and tax purposes. Many businesses outsource their accounting to professionals, but it’s good to understand the basics of accounting if you run a business. Here are some things you should know about the basics of accounting:
What Is Accounting?
Accounting is the process of recording, classifying and summarising financial transactions. It can offer a picture of the financial health of an organisation and its performance, which can support resource management and strategic growth. The aim of accounting is to provide an idea of what’s working and what isn’t working so that you can attend to the issues it raises.
Why Accounting Is Important
Accounting outlines a business’s financial performance; it clarifies profit and loss. This information can be made available to business owners, investors, stakeholders and creditors who want to understand a business and decide whether it offers a good investment and what can be expected from it in return. So, accountancy provides transparency for stakeholders and ensures a business makes informed decisions supported by data.
Accountant / CPA / Tax Professional
An accountant has a bachelor’s degree and provides financial advice, tax planning, and bookkeeping services.
Accountants prepare financial reports and deal with payroll and cash management. An accountant may utilize a pay stub creator to streamline the payroll process, improve accuracy, ensure compliance, and enhance efficiency. A certified public accountant (CPA) has more training and experience than a regular accountant and has passed all parts of the CPA exam. Tax professionals can include CPAs, lawyers, accountants, brokers, financial planners and more. Their job is to help clients pay the correct amount of income tax. All CPAs are accountants, but not all accountants are CPAs.
Types of Accounting
Accounting can be separated into several categories, accountants in each category deal with a specific area of financial specialisation, or they document specific transactions. Bridges and Associates, Southwest Sydney, employs experts in each of these areas. Here are the four most common branches of accounting:
Financial Accounting
This consists of recording and reporting financial transactions and cash flows. This type of accounting is especially important for generating financial reports for the scrutiny of government agencies. The financial statements report on the performance and financial health of a business. For instance, a balance sheet shows assets and liabilities, and an income statement shows revenues and expenses. Financial accounting is governed by both national and international accounting rules and regulations.
Managerial Accounting
This area of accounting deals with the use and interpretation of financial information to make solid business decisions. It’s just like financial accounting but for internal use, and financial statements are generated frequently so as to continually evaluate and interpret financial performance.
Cost Accounting
Cost accounting tracks and analyses costs involved in a particular business activity. It covers all expenses associated with the day-to-day operations of a business. It is particularly important because it ensures that money is being spent on things that specifically benefit a business.
Tax Accounting: Tax Accounting tracks and reports income and expenses related to a business’s taxes.
