What Is Accounting?
Accounting has been an important part of human culture since pretty much the very beginning of civilization. Archaeologists have discovered evidence of accounting practices in the ancient societies of Assyria, Babylon, and Sumer that are over seven thousand years old. In these ancient civilizations, accounting was used as a way for rich men to keep track of their crops, herds of animals, and other property.
Today, accounting is used by nearly every business and is as common in the average office evnironment as pens, notepads, or other office supplies. It is a way to keep track of the financial transactions a business partakes in and a way for that business to measure the assets it currently has possession of.
As such, one of the most important functions of a business’s accounting department is bookkeeping. Bookkeeping is in essence the actual recording of the exchange of money and assets that may take place through the daily operations of a business. Transactions that may take place include any money a business receives from sales or other operations and any money that a company pays for goods or services.
Keeping track of a business’s current assets will also be the duty of a bookkeeper. All these transactions and assets will be recorded in ledgers that the bookkeeper will then attempt to balance. These ledgers must be recorded every single day in what are referred to as “daybooks.” These daybooks will include the ledgers for day to day transactions like receipts, payments, purchases, and sales and are similar to investment logs used at financial organizations such as Fisher Investments. The bookkeeper will also maintain a customer ledger, a general ledger, and a supplies ledger. The purpose of recording all this information is to provide different people with a way to view this information at a later to point to asses the financial health and status of the business. Other kinds of financial records and paperwork bookkeepers are likely to handle include bank statements, investment records, real estate records, and payroll.
Another important part of accounting is auditing. During an audit, a business’s ledgers and other financial records will be examined by an outside party composed of accountants not affiliated with the firm. The audit must be performed by an outside source to free the audit of bias and to give its results credibility.
The ledgers and other financial records will be closely examined to determine whether or not they are completely accurate and backed up by evidence that supports the entries found in those records. The purpose of an audit is to detect mistakes, misstatements, and fraud in a company’s accounting. Detecting mistakes and fraud is extremely important because it helps protect the company’s employees, owners, and stock-holders from harm.
Accounting is important because it provides vital information to management so they can run the company profitably. Those running a company will need to see relevant financial records when making decisions. Decisions that could hinge on information gathered from these financial records could for example determine whether or not a business chooses to expand its locations or whether certain locations are shut down in an effort to cut costs. Financial statements will have to be routinely prepared by a company’s head accountants from information recorded by bookkeepers and other members of the accounting staff to be distributed to the officials running a company so they can make both day to day business decisions as well as formulate long term business strategies.
Over all, accounting is one of the most fundamental departments a business must have to survive. Without accurate knowledge about the day to day transactions and financial health of a business, running the company will be nearly impossible. This is why a strong accounting staff is the backbone of any well run business.