Accounting – Definition, Origin, Types, Objective, Basics and More
Accounting is a resource available to achieve the expenses and income of a company. Any company developing its action carries out purchase, sale, financing processes. As a result of these doings, its possessions differ, and it obtains a profit or a loss.
It is a crucial tool to know what situation and conditions a company is in and, with this documentation, to talent enough to establish the necessary strategies to improve its economical presentation. For example, if we buy timber to make chairs, we will have to account for that acquisition to know how much we have, how much it cost us, who the vendor is, what date we bought it, etc. Accounting custody of all this and more.
All companies are aware that they must adequately manage accounting parameters. This concept involves small and medium-sized enterprises ( SMEs) and large multinationals. In the same way, it is due together to reasons of a financial nature —in terms of ensuring adequate profitability—and fiscal provisions, due to the pressure of the federal, provincial and local treasuries on each business information.
Origin of Accounting
Accounting has been current in the lives of men for thousands of years. It was rummage-sale in an additional rudimentary way in great people such as Egypt or Rome. Still, accounting as we know him today had its origin in the publication in Italy of the work “Summa de Arithmetica, Geometria, Proportions e Proportionalita” by Luca Pacioli, which was dedicated to telling accounting methods of Venetian merchants, mercantile uses, contracts and practices of interest and exchange.
This document established double-entry accounting, the precedent for what is now known as “debits and credits” in accounting jargon. But since the old Italian states and microstates were the great organizers of trade in previous centuries, these teachings adapt and adapted with tintypes of Accounting.
Depending on the field famous which it remains practical: Depending on the specialism, we can distinguish between tax accounting, managerial accounting (for managers), charge accounting or financial accounting.
Objectives of Accounting
It should also be renowned that the fundamental objectives of secretarial are, on the one pointer, toward understand the past to make decisions in the company and satisfy the request for information from different attention groups (such as shareholders, lenders or public management) and on the other hand, record all economic and financial operations. Furthermore, if we break down these reasons, we can say that accounting use to:
- Analyze the stretch part of the economic resources of a company.
- Allow administrators to plan and direct business transactions properly.
- Control and keep the best of the administrators’ management and the company’s tax charges.
- Help predict coin age movements.
- Collaborate with the necessary information when amassing national statistics on economic activities.
Basics of Accounting
To fulfil the main objectives of accounting, a set of techniques and methods require that, together, constitute an accounting method. The method comprises several essential elements.
Ledger accounts group liabilities, assets, and current transactions effectively.
The documentation is a thorough written record of all the agreed-upon economic activity, which stretches legal power to the data recorded in the accounts.
Valuation is an effective method of expressing cash and its bases in monetary terms.
Inventory is a periodic check of the assets recorded in the organization’s balance sheet, which approve by pondering, describing, counting, reconciling, valuing the identified assets, and subsequently comparing the results with the accounting data.
Accounting Meanwhile, the end of the 20th century
Thanks to the world’s technological advancements while the end of the 20th century, it fix to make a special mention of computing. Modern resources have turned the conventional approach to accounting on its head. Therefore, experts in this discipline have been made easier thanks to spreadsheets and equity or stock records, with better control of inputs and outputs.
Computer Applications for Accounting
Any business that seeks to function appropriately must rely on secretarial. Luckily, the Internet offers high-quality tools for this drive, and some are free. They design to assist businesspersons who do not have the essential capital, such as an accounting department, and agree to complete control of their activities. On the other hand, those that entail a monthly payment are always more inexpensive than the salary of an accountant.
Equity Elements and Monetary Statements
Within accounting, here are both equity elements and monetary declarations. They are two concepts of great importance and on which the entire base of it remains articulated.
The possessions remain:
- Net worth.
On the other hand, the monetary statements are:
- General balance or situation.
- Income statement or profit and loss account.
- Notice of changes in equity.
- Statement of cash flows.
Accounting of Harmonization
Accounting harmonization is a development that has stayed agreed out in recent years so that the annual accounts of concerns are comparable with each other. This process is dynamic in a globalized and competitive world where companies can obtain financing anywhere but are also equal in a simple way for those interest groups.
Whether because you want to invest in it or simply because you want to work in your organization. For this, the international financial reporting standards (IFRS), also known by its acronym in English IFRS, create.
This information document according to the principle of continuity and archiving, from the registration of a new company to its complete liquidation, in compliance with current regulations.
The Goal of Accounting
In turn, accounting has a series of ultimate goals distinguished into four categories.
The first is calculating time, accounting chronologically for changes and increases in assets and liabilities in a company.
Second, the company must document each transaction and report it to the authorities.
The representation of the accounts is the third objective since the numbers obtained in a time must be shown to those who need it, for example, to investors.
Accounting According to the Law
For any accounting entry to be lawful and comply with the legislation, a series of characteristics must meet. Any seat or access must be continuous. That is, there can be no jumps between them.
Documentation is daily. Although it does not mean that it has to do every day, it does mean that each movement must count according to the day.
On the other hand, it must take into account that no registered movement can delete. This prevents fraud. Finally, everything has to be legally filed and organized, and there can be no seat without its corresponding receipt, invoice or document.
It consists of recording the economic operations of the company to obtain the financial statements that will serve for decision-making or the settlement of taxes.
All companies must carry it except natural persons (self-employed) covered by the Simplified Direct Estimation Regime or the Modules Regime.
The information extracted from it is beneficial, which is why many freelancers carry it even though they not oblige to do so.
No person with a specific qualification needs to be in charge of its preparation or be part of its staff. Just have enough knowledge. Choosing a good accounting program that fits your needs is very important.
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