Accounting is the methodical system of recording, processing, maintaining, and reporting financial and nonfinancial data about non-financial entities such as companies and organizations. Accounting records the performance of an entity, in terms of sales, costs, income, expenses, assets, liabilities, and financial position of the entity over a period of time, and makes the necessary comparisons between the results of one period with those of the other. This type of information helps management to make informed decisions about the future of the organization, in terms of the organization’s objectives, resources, operations, business processes and risks. In simple words, accounting is all about making sense of the information.
There are many types of accounting systems available in the market today, with some systems being more widely used than others. Generally, the most widespread accounting system is the cash flow accounting system. However, it may also be used for inventory control, financial accounting, and bookkeeping. Generally, the accounting system is made up of four basic stages; namely preparation of the financial statements, analysis of the financial statements, preparation of the tax returns, and management of the company.
Preparation of the financial statements is done by compiling financial information from audited financial reports of the organization and comparing it to financial statements prepared by an accountant. The accounting auditor will be the only one who knows the details of how the organization has conducted its affairs. The accountant will present the auditor with written accounts and financial statements, which will contain the information which is needed to prepare the financial statements. The accountants’ job will be to ensure that all financial statements are prepared accurately.
The next stage is an analysis of the financial statements and tax returns. The analysis of the financial statements consists mainly of the estimation of the expected profit or loss, based on the estimated amount of revenue and expenditure. The tax returns contain the actual data collected on tax returns for the period of organization and the tax liability of the organization. These tax returns have to be compared with the estimated taxes collected. In addition, the accountants also need to find out whether there was any fraud, irregularity, or omission in the tax returns. If there is no fraud or irregularity, the tax liability of the organization will be reduced.
The management of the organization then prepares the tax returns and the financial statements according to the estimates. The preparation of the financial statements is usually made by the general ledger, the book keeping system, or the computer. Accounting clerks are appointed to keep an eye on the bookkeeping records and do any extra work. required.
The accounting staffs are not very experienced, but their services are highly valuable as they are well trained and have excellent skills of the bookkeeping process. They are the ones responsible in preparing the income statements and also prepare the tax returns. Most companies hire accountants to provide them with the services. They also help with the general management of the organization.