Purpose of Accounting
Accounting practices are necessarily followed by businesses for many reasons. Primarily, these practices focus on recording various transactions and their summarization that take place during business operations. An assortment of people studies these summaries, which are of particular interest to stakeholders of business. Stakeholders include banks and other financial institutions, stockholders, owners and even employees of the company. Accounting may be carried manually or using especially designed software.
Accounting practices need to be followed to keep a track of flow of funds, including revenue and expenses. Accountants maintain a record of financial transactions and make periodical statements that provide the needed information for taking decisions about future requirements and goals of business. Of course, business software are available that considerably reduce manual labor needed for accounting, but it is imperative for business owners and managers to understand the fundamentals of accounting system.
The basis of present day accounting is following double entry system of bookkeeping. It simply means that for every account that is debited, there has to be a corresponding credit from where the funds came in. So, finally, credits and debits should add up to give zero. If it is not so, there is definitely an error in accounting. When checking records of someone, the accountant or their associates try hard to pinpoint the discrepancy for getting accurate results.
Most of the accounting jobs in business houses are done by certified public accountants. For qualifying as a CPA, you should have finished undergraduate study with at least thirty six credit hours devoted to accounting, subsequent to which you have to pass a very taxing and competitive specialized exam. It is obligatory for accounts to ensure that the books of accounts of their patrons are maintained as per GAAP (Generally Accepted Accounting Principles (GAAP).
Businesses need to employ accountants to achieve their goal of earning increased profits and in doing so also pay all their debts and relevant expenses. Often, businesses are required to seek professional advice from accountants, especially on financial matters, for smooth operation of their business activities. For instance, the company may consider buying latest manufacturing machines to improve its production. So, the management needs to ask the accountant to find a way for buying new equipment in such a manner that it doesn’t affect making payments to workers, vendors and any debt obligations to financial institutions.
Accurate accounting services are essentially needed for the long term prospects of any business. Apart from being a legal obligation, preparation and submission of accurate balance sheet is of paramount importance for business on the whole. Unless the books of accounts are balanced, it becomes impractical to assess the financial performance of businesses. Integrity of character is among the most fundamental requirements for professionals in this field. Yes, there may be ways to pull the wool over the eyes of creditors and investors or employ misleading accounting tricks to derive short term gains, but in the long run such practices are bound to create risks that could threaten the very survival of business.