Accounting or accountancy refers to the scientific measurement, analysis, and communication of information about financial and non-financial entities like corporations and businesses. The processes include mathematical procedures, statistical methods, information systems, financial reporting, and the documentation of financial transactions. An accountant is a person who makes accounting reports. Accountants are needed by companies to ensure accuracy of financial records and to maximize the productivity of their business by efficiently using their time and resources. Accountants formulates and implements accounting principles. They also keep a record of financial transactions in journals and ledgers.
To understand financial statements, you must know something about accounting information such as how they are presented, what data they comprise, what accounting reporting means, what the interpretation of results mean, the significance of accounting terms to the current and future financial situation, what auditors do, the responsibilities and powers of an accountant, and the duties and responsibilities of a financial auditor. Accounting reports present a summary of an entity’s financial position. It also helps decision-makers know the current or prospective status of financial condition.
In order to understand accounting statements, it is important to have a basic knowledge of business operations. The purpose of accounting is to record the financial transactions of a business in a timely and consistent manner. A company’s income statement is a summary of its income and expenses and is usually presented on the basis of the period of performance. A company’s net income and net loss each represents one of the following: income from sales of products or services; income from accounts receivable and customer bills; income from accounts payable; and income from a loan or lease activity.
An accountant must analyze the financial statements presented to make sure that all of the items listed in the income statement and the financial statements are recorded accurately. An experienced accountant will use standard accounting practices to prepare the financial statements and will perform certain tests to check the consistency of the recorded financial information. These practices and tests are referred to as auditing. An experienced accountant will have developed a reputation for being accurate and making accurate financial reports. Accountants who perform audits must follow generally accepted accounting principles.
The goal of accounting is to create a method of measurement that will give results that are the most reliable. The method chosen for measurement will depend on the nature of the financial transactions being examined. There are several categories of accounting methods used in accounting. The most common categories are the traditional accounting methods such as GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), and CPA (Certified Public Accountant). Other methods of accounting include: retail price accounting, capitalization accounting, environmental accounting, internal/external trading, corporate finance, venture capital, government accounting, insurance accounting, mortgage banking, international trade accounting, and foreign exchange trading.
A company’s internal control measures are important to understanding the accounting literature. Internal controls refer to those policies and procedures that a company employs to ensure the protection of its assets and the provision of appropriate loans and other financial reports to stakeholders such as investors, customers and employees. There are four elements of effective internal control: assurance, compliance, knowledge and policies. Control is a process and goal that are implementing to achieve the aim of providing reliable, accurate and timely financial reports to meet the requirements of the users. Accounting policies and procedures help to enhance the assurance level of accounting reports.