There are four basic accounting concepts. The concepts specify and explain the guidelines that should be followed when managing the accounting of a business. Below there is a list of the these four basic accounting concepts and a brief summary of each concept.
1. Accruals Concept
Accounting
The accruals concept states that revenue from transactions and transactions which cause liabilities are accounted for when they occur, even if cash or property has not actually been exchanged between the entities involved in the transaction. For example, a dentist, Dr. Payne orders and receives 6 months worth of toothpaste for 0 in January. Even if he does not pay for the toothpaste until February, Dr. Payne should still record the 0 liability in January and not wait until February, since he owns the goods and is liable to pay for them to the supplier. On its turn the supplier will be accounting for the sale of toothpaste to Dr. Payne.
Accounting Theory - Basic Accounting Concepts
2. Consistency Concept
Once certain accounting method has been applied by the accountant, this methods must be applied throug all the further periods for the accounting purposes. The accounting method should only be changed if there is a valid reason that requires the change. For example, if the accountant starts recording transactions using the double-entry accounting method in January, he or she should continue applying the double-entry method for the remainder of the accounting period. He or she should not begin applying the double-entry method and suddenly switch to the single-entry accounting method mid-accounting cycle for no identifiable, valid reason. This means that all the accounting methods and procedures must be applied consistently to ensure comparability of information among periods.
3. Going Concern Concept
When the accounting of a business is being managed, it should be assumed by the accountant that the business is viable and will still operational in the foreseeable future. If the accountant has any reason to believe that the business will not remain viable in the foreseeable future, he or she must state the reasons for coming to that conclusion in the financial reports of the business. If the accountant has an opinion that the company will not remain in business and there are no sufficient evidence to proof the opposite, the accountant may simply include a disclaimer in the financial reports stating that he or she believes, but cannot show evidence to prove that the business will not remain viable.
4. Prudency Concept
Liabilities are accounted for in the balance sheet even if they is only a possibility for such liabilities to occur, despite they are potential. However, revenues are accounted for in the financial statements only if the business has title for such revenue and has already collected or will collect cash or other assets in the future. If there is a doubt about this or there is no strong legal basis to recognize revenue, it is not accounted for in the accounting books. This concept helps to ensure that businesses make provisions for potential losses, not just realized losses, and do not erroneously include revenues that are simply anticipated, but not yet earned.
Accounting Theory - Basic Accounting Concepts
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The convention of relevance emphasizes the fact that only such information should be made available by accounting as is relevant and useful for achieving its objectives. For example, business is interested in knowing as to what has been total labor cost? It is not interested in knowing how much employees spend and what they save.
Accounting
(2) Objectivity
Accounting Conventions and Accounting Concepts
The convention of objectivity emphasizes that accounting information should be measured and expressed by the standards which are commonly acceptable. For example, stock of goods lying unsold at the end of the year should be valued as its cost price not at a higher price even if it is likely to be sold at higher price in future. Reason is that no one can be sure about the price which will prevail in future.
(3) Feasibility
The convention of feasibility emphasizes that the time, labor and cost of analyzing accounting information should be compared vis-à-vis benefit arising out of it. For example, the cost of 'oiling and greasing' the machinery is so small that its break-up per unit produced will be meaningless and will amount to wastage of labor and time of the accounting staff.
Accounting Concepts
(1) Materiality
It refers to the relative importance of an item or event. Those who make accounting decisions continually confront the need to make judgments regarding materiality. Is this item large enough for users of the information to be influenced by it? The essence of the materiality concept is : the omission or misstatement of an item is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying on the report would have been changed or influenced by the inclusion or correction of the item.
(2) Accounting period
Though accounting practice believes in continuing entity concept i.e. life of the business is perpetual but still it has to report the 'results of the activity undertaken in specific period (normally one year). Thus accounting attempts to present the gains or losses earned or suffered by the business during the period under review. Normally, it is the calendar year (1st January to 31st December) but in other cases it may be financial year (1st April to 31st March) or any other period depending upon the convenience of the business or as per the business practices in country concerned.
Due to this concept it is necessary to take into account during the accounting period, all items of revenue and expenses accruing on the date of the accounting year. The problem confronting this concept is that proper allocation should be made between capital and revenue expenditure. Otherwise the results disclosed by the financial statements will be affected.
(3) Realization
This concept emphasizes that profit should be considered only when realized. The question is at what stage profit should be deemed to have accrued? Whether at the time of receiving the order or at the time of execution of the order or at the time of receiving the cash. For answering this question the accounting is in conformity with the law (Sales of Goods Act) and recognizes the principle of law i.e. the revenue is earned only when the goods are transferred. It means that profit is deemed to have accrued when 'property in goods passes to the buyer' viz. when sales are affected.
(4) Matching
Though the business is a continuous affair yet its continuity is artificially split into several accounting years for determining its periodic results. This profit is the measure of the economic performance of a concern and as such it increases proprietor's equity. Since profit is an excess of revenue over expenditure it becomes necessary to bring together all revenues and expenses relating to the period under review. The realization and accrual concepts are essentially derived from the need of matching expenses with revenues earned during the accounting period. The earnings and expenses shown in an income statement must both refer to the same goods transferred or services rendered during the accounting period. The matching concept requires that expenses should be matched to the revenues of the appropriate accounting period. So we must determine the revenue earned during a particular accounting period and the expenses incurred to earn these revenues.
(5) Entity
According to this concept, the task of measuring income and wealth is undertaken by accounting, for an identifiable Unit or Entity: The unit or entity so identified is treated different and distinct from its owners or contributors. In law the distinction between owners and the business is drawn only in the case of joint stock companies but in accounting this distinction is made in the case of sole proprietor and partnership firm as well. For example, goods used from the stock of the business for business purposes are treated as a business expenditure but similar goods used by the proprietor i.e. owner for his personal use are treated as his drawings. Such distinction between the owner and the business unit has helped accounting in reporting profitability more objectively and fairly. It has also led to the development of "responsibility accounting" which enables us to find out the profitability of even the different sub-units of the main business.
(6) Stable Monetary Unit
Accounting presumes that the purchasing power of monetary unit, say Rupee, remains the same throughout. For example, the intrinsic worth of one Rupee is same and equal in the year 1,800 and 2,000 thus ignoring the effect of rising or falling purchasing power of monetary unit due to deflation or inflation. In spite of the fact that the assumption is unreal and the practice of ignoring changes in the value of money is now being extensively questioned, still the alternatives suggested to incorporate the changing value of money in accounting statements viz., current purchasing power method (CPP) and current cost accounting method (CCA) are in evolutionary stage. Therefore, for the time being we have to be content with the 'stable monetary unit' concept.
(7) Cost
This concept is closely related to the going concern concept. According to this, an asset is ordinarily recorded in the books at the price at which it was acquired i.e. at its cost price. This 'cost' serves the basis for the accounting of this asset during the subsequent period. This' cost' should not be confused with 'value'.
It must be remembered that as the real worth of the assets changes from time to time, it does not mean that the value of such an assets is wrongly recorded in the books. The book value of the assets as recorded do not reflect their real value. They do not signify that the values noted therein are the values for which they can be sold. Though the assets are recorded in the books at cost, in course of time, they become reduced in value on account of depreciation charges. In certain cases, only the assets like 'goodwill' when paid for will appear in the books at cost and when nothing is paid for, it will not appear even though this asset exists on name and fame created by a concern.
Therefore, the values attached to the assets in the balance sheet and the net income as shown in the Profit and Loss account cannot be said to reflect the correct measurement of the financial position of an undertaking, as they do not have any relation to the market value of the assets or their replacement values. This idea that the transactions should be recorded at cost rather than at a subjective or arbitrary value is known as Cost Concept. With the passage of time, the market value of fixed assets like land and buildings vary greatly from their cost.
These changes or variations in the value are generally ignored by the accountants and they continue to value them in the balance sheet at historical cost. The principle of valuing the fixed assets at their cost and not at market value is the underlying principle in cost concept. According to them, the current values alone will fairly represent the cost to the entity.
The cost principle is based on the principle of objectivity. The supporters of this method argue so long as the users of the financial statements have confidence in the statements, there is no necessity to change this method.
(8) Conservatism
This concept emphasizes that profit should never be overstated or anticipated. Traditionally, accounting follows the rule "anticipate no profit and provide for all possible losses. For example, the closing stock is valued at cost price or market price, whichever is lower. The effect of the above is that in case market price has come down then provide for the 'anticipated loss' but if the market price has gone up then ignore the 'anticipated profits'.
Critics point out that conservation to an excess degree will result in the creation of secret reserve. This will be quite contrary to the doctrine of disclosure. However, conservatism to a reasonable degree may not come in for criticism.
Accounting Equation
Dual concept may be stated as "for every debit, there is a credit." Every transaction should have two sided effect to the extent of same amount. This concept has resulted in Accounting Equation which states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of owner's equity and outsider's liabilities. This may be expressed in the form of equation:
A-L = P
where
A stands for assets of the entity;
L stands for liabilities (outsider's claims) of the entity; and
P stands for Proprietor's claim (Capital) on the entity.
(The form of presentation of equation A-L = P is consistent with the legal interpretation of financial position. Thus it emphasizes that properly speaking the proprietary claim is the balance after providing for outsider's claims against the business from the total assets of the business).
Accounting Conventions and Accounting Concepts
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A lot of people do not really know what forensic accounting is about. Forensics accounting is actually the practice of utilizing accounting, auditing, and investigative skills to conduct examination into a company's financial statements in legal matters.
Forensics Accounting consists of three main areas, for example, litigation support, investigation and dispute resolution. Litigation support involves the factual presentation of financial issues related to existing or pending litigation. In such circumstances, the forensic accounting professionals are normally responsible to quantify the damages sustained by the parties involved in legal disputes before these cases are brought to the court.
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Investigation comes in when criminal matters have occurred, such as falsification of financial statements, internal theft, securities fraud, insurance fraud, bribery, and so on and so forth. Further actions are taken after detailed investigation is conducted.
What is Forensics Accounting and What Does a Forensic Accountant Do?
On the other hand, when a dispute has been brought to the court, the forensic accountant may act as an expert witness for the related matter. They will also be responsible for preparing necessary evidence. Forensic accountants are specialized accountants. They can also be called forensic auditors or investigative auditors.
They are specialized in investigating and interpreting white collar crimes which always relate to criminal financial transactions in the company, i.e. money laundering. Most of the time, they also get involved in investigating securities fraud, contract disputes and other illegal business activities such as bribery and embezzlement.
Forensic accountants utilize their knowledge in accounting and finance as well as company law and commercial law in their daily routine. They are also well equipped with all the updated business information, government legislation, financial reporting systems, accounting and auditing standards, and litigation processes and procedures when they are carrying out their task.
Furthermore, besides the required knowledge, it is essential for them to have two important skills, for example, investigative techniques as well as evidence gathering skills in performing their task.
Forensic accountants have played an important role in assisting the government as well as the public to detect accounting scandals and financial crimes caused by individuals, companies and organized crime networks. Unlike accountants and auditors, when forensic accountants conduct audits, they are actively looking for signs of fraud and they use their investigative skills to determine whether a business activity or a financial transaction is illegal.
Forensic accountants are part of the extension of the legal team and they are responsible for preparing and reviewing financial evidence. Their responsibilities are as follows:
Investigating and analyzing financial evidence, especially in complex or potential criminal financial transactions
Developing computerized applications to analyze, compare and interpret financial facts and figures
Transforming their findings into reports to the related people for their financial decision
Assisting in legal proceedings, including preparing supporting documents and acting as expert witnesses during trials
What is Forensics Accounting and What Does a Forensic Accountant Do?
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An accountant has to take a series of certification tests, so that they can become a Certified Public Accountant, an assistant accountant may have almost the same amount of education but they may have fallen short by a couple of years, and they have not taken the licensure tests.
An assistant accountant is largely responsible for the same tasks as the accountant but they do not have that CPA status so they are delegated most of the duties that the accountant does not want to do themselves.
Accountant
Salary Range
What Are the Duties of an Assistant Accountant?
The salary range for this type of assistant is usually typically a fair wage. Of course there are a couple of contributing factors that will dictate the salary range. Years of experience are probably the number one factor that will affect salary range. Next in line is geographical location, the cost of living in your area will greatly effect how much this position is paid. The level of responsibility that the position entails will also play a huge roll in the salary range.
In most cases the range will vary between twenty five thousand dollars for an entry level position to over one hundred thousand dollars for a position that requires experience.
Typical Duties
The duties that are typically involved with this type of position revolve around working under the direction of a CPA. You can expect to be crunching numbers all day long; you may prepare tax returns with the CPA reviewing your work.
You may have to reconcile bank accounts, and prepare statements. There are other duties that you will be tasked as the CPA sees fit. Most of the duties will be centered on typical accounting procedures.
Most assistant accountant positions are with rather large firms, so you may have to work with more than one accountant. Part of your job will be to get to know what each accountant expects and how they handle their work load. You will be expected to navigate through the different personalities and learn to multi task to keep all the people that you support happy.
Being an assistant accountant can be a rather lucrative career, as long as you can handle the pressure of having someone checking your work all the time. Most CPA's are going to be rather diligent when it comes to double checking things because ultimately the responsibility for the work falls in their lap.
What Are the Duties of an Assistant Accountant?
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A casualty loss is the damage, destruction, or loss of property resulting from an uncontrollable event that is sudden or extraordinary. It can also be an order of the government to destroy or remove a structure for safety reasons because of a disaster. These losses are considered a valid casualty, whether it is personal or business property, if they are as a direct result of a particular event that is sudden, unpredicted or destructive. These events could be caused by fire, flood, earthquakes, theft or other similar events.
When accounting for an individual casualty or theft loss deduction, you must consider several conditions in order to qualify. Aside from selecting the itemize deduction option, you must establish proof of ownership and value of the items loss. To determine the validity of your casualty or theft loss and claim the deduction, you must complete the form for Casualties and Thefts. The completed form must be filed with your tax return.
Accounting
It is difficult to establish credibility for this deduction especially if you have no record of ownership and value of the property - a receipt of purchase or other documentation. For uninsured property or a gift, perhaps the proof to ownership and value can be established by the person who gave the gift. In the event of a theft, it makes sense to file a police report as documentation to establish your loss.
Accounting - Casualty or Theft Losses
A casualty or theft loss, as a result of a car accident or vandalism, can be established as a valid loss deduction by using insurance and appraisal documentation. However, for insured property that is considered a loss, a claim must be filed with the insurer even if the value of the property is not expected to be recovered from the insurer.
If your loss was the result of an unanticipated, abrupt disaster, your records were probably destroyed by the devastation. You can reconstruct your records to determine ownership and the value of the property through records such as insurance and appraisal documents. Appraisal fees are not considered a loss, but accounting for these fees is permissible as a miscellaneous deduction.
An invalid casualty or theft loss is deliberate damage or destruction of property caused by the person seeking gain or reimbursement. An invalid loss can also be neglect, failing to make necessary repairs to property, or carelessness, such as failing to secure valuables by leaving keys in an unlock car.
Repairs are not normally a valid deduction, but the cost of repairing and cleaning up the property to bring it back to the condition before the disaster is a valid deduction. The cost of repairing damage (only) to leased property, such as a car, caused by a casualty disaster is also a valid deduction. To establish the condition of your property before a disaster, its smart to video tape your property in advance and keep the tape in a secure place away from the property.
The amount of your deduction usually does not equal your loss. Certain conditions and calculations are mandatory when accounting for this deduction that will reduce the amount of your claim. The reductions include insurance reimbursements and other adjustments that may affect your claim. IRS accounting practices require that you reduce each loss according to a three-step process. First, by the 0 floor amount, 10% of your AGI and the decrease in the property's fair market value as a result of the damage or original cost. This could eliminate your entire deduction if it is a small claim..
Accounting for a loss that occurred in a Presidential declared disaster area, gives you the choice of claiming your loss in the year it happened or in the previous year by amending your tax return for that year. Choosing the prior year will quickly make your refund available to you.
The receipt of a reimbursement that is not used to replace your property may be considered a taxable gain. To suspend the gain, you must replace the property with a comparable one and it must be at least the same value as your reimbursement. The replacement must be made within a two-year period, which starts the last day of the year the gain is realized. You must replace the property within four years of your reimbursement, or request a one-year extension, if your loss occurred in a Presidential declared disaster area, in order to avoid a taxable gain.
Accounting - Casualty or Theft Losses
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For many of us our only involvement with the subject of accounting is simply the balancing of our checkbooks. Some people might even go one step further and input all of their transactions into their favorite software program. There are even a great many of us who simply do not balance their checkbooks at all! But there are many individuals out there who work in the accounting industry for a living. Some professionals work in large accounting firms where anyone barely knows who you are in the whole scheme of things. These professionals might even work with web based accounting software. Other professionals own their own accounting practice and simply prepare the basic tax returns or assist in the preparation of an assets and liabilities chart.
There are many different ways to go about keeping track of the crunching of numbers that accountants do. Some people who tend to be somewhat from the old school thought of doing things. These individuals merely do their accounting computations with a pad of paper and a pencil. Although this way of doing things may seem strange and slow for those of us who were raised during the technology boom, those who utilize their pencil and paper swear by it. You will never hear them complaining that they just lost all of their data because the computer froze and they had to start all over. Always having a hard copy of your work is one of the benefits to employing this method rather than using an accounting management system.
Accounting
For those professionals who are more computer savvy, they simply use some sort of accounting software. With this specialized computer program, the users are able to just type in the information that the computer is asking for next and the software generates a perfectly complete tax return. This can come in quite handy and can save valuable time, especially when it comes to preparing the more complex returns. This is generally when you are dealing with a partnership return, a trust return or even someone who has several rental properties they manage.
Accounting - Using a Pencil and Paper to a Complex Accounting Management System
When it comes to saving time and money, one of the best ways to go about doing this is through the use of web-based bookkeeping. When using web-based accounting software, people who work for your company all around the country can have ready access to your accounting. Plus there are no setup fees and you also get to keep your initial costs lower.
No matter what method of bookkeeping you or your company uses, there is really no correct way. When it comes to getting the job done, the best you can do is to use whatever system makes you the most comfortable. Even if that means using a pencil and a pad of paper!
Accounting - Using a Pencil and Paper to a Complex Accounting Management System
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A bachelor degree in accounting is at least one of those degrees that have a clear and precise purpose. Almost all students who get a bachelor degree in accounting go on to become accountants. This is why this particular degree is actually one of the more popular ones. Ironically, however, it is not one of the easier ones. So just what is involved in getting a bachelor degree in accounting?
The old saying that you had better be good with numbers to be an accountant can't be any more true. You had better be a whiz with numbers if you want to be a good accountant. If you want to be a great accountant, you had better be able to think outside the box as well. More on that later.
Accounting
A bachelor degree in accounting is really to prepare somebody to become a CPA, or Certified Public Accountant. This is very similar to somebody who wants to go into law and having to pass the bar. If you want to be a CPA, you also have to take an exam and it's not easy. You pretty much have to know your tax laws inside and out, aside from knowing every aspect of accounting from debits and credits to debt to equity ratio.
Bachelor Degree - Accounting
Your first year as an accounting major begins with two semesters of basic accounting. This is where you do learn your basic debits and credits, how to do a ledger, journal, etc. The basics of accounting are, for the most part, pretty easy. But if you can't get through your first two semesters you're not going to have a chance at what comes next. From year two through your last year in college, you will learn the most advanced accounting principals. Probably the most important skill you will need to be able to get through these years, in addition to being good with numbers, is logic. The reason is that in accounting, everything has to balance. One side must equal the other. This basically comes down to logically working through every entry.
In addition to these advanced accounting courses, as if they're not hard enough, you're also going to have to take other math related courses such as statistics, probability and in some schools, even calculus, at least for one semester.
In addition to math related courses, you're also going to have to take financial courses. This makes sense since accounting is not just about numbers but also about running a business. So courses like economics, finance and business management are not uncommon for an accounting major to take.
Earlier we talked about thinking outside the box. The reason this is important is that a lot of accounting is figuring out creative ways to report income and expenses so that they make a company's tax liability as little as possible, within the law.
Many people think accountants have boring jobs, but the truth is, accountants have to be some of the most creative minds in our world in order to deal with all the changing tax laws and keep a company from losing its shirt. Yes, getting bachelor degree in accounting is not as easy as some people might think.
Bachelor Degree - Accounting
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1. Intro
Before I introduce this month's insurance topic, I need to point out a bit of irony that took place at the end of last month. After writing an article about what to do in the event of a winter auto accident, I found myself slipping on ice, heading slow-motion toward another car at an intersection. I was driving at the right speed for the conditions. Sometimes however, events are just out of your control. As I slid slowly toward the other car that day, I was glad of two things, I was sliding SLOWLY and that both I and the other driver were protected against the financial loss that was quite literally coming our way. We've all been there; writing the monthly check for the auto or home insurance, thinking to yourself, why do I have to pay money to a company for the promise that they'll pay out when I need it. That day, I was glad I had it, but rest assured there are many days I don't feel those same emotions. My goal in this month's article is to provide you with basic differences between the main varieties of insurance and some reasons for its existence.
2. What is Insurance
Accountant
Put simply, "Insurance" is the payment of a small predictable amount of money ("premium") to protect against a larger unpredictable expense ("loss/claim").This transfers the risk from you to the insurance company for a fee. This protection comes in several ways.
What is Insurance and Why Do We Need It?
Liability Insurance:
Everyone talks about our "litigious society". We all know people who are sue-happy. You could say that liability protection is for other people. Liability insurance is the protection afforded to you by the insurance company, telling you that they'll pay the amount you become legally obligated to pay. Sometimes this could mean a court case but more often the issue is "settled" for you by the insurance company. Imagine that your houseguest trips and falls on the ice on your walkway, and blames you for not putting out sand or salt. Your insurance company responds by paying for her medical bills, lost wages and maybe pain and suffering because of the accident.
Property Insurance:
This kind of insurance protection is more tangible than liability. Property insurance protects physical stuff against damage or loss of use. Most policies will include and exclude certain kinds of events, called "perils". For example War is excluded on almost every policy; which is why on 9/11, when President Bush declared war, he simultaneously voided coverage for all of lower Manhattan. Fire on the other hand is included on almost every insurance policy because fire insurance is historically where property insurance has its roots.
Professional Insurance:
You can think of this kind of insurance as liability insurance for specific professions. Doctors, Lawyers and Engineers have to have this kind of insurance in case they make a bad decision or give poor advice. This kind of insurance is expensive, especially in areas like the medical field where professionals are making judgment calls many times a day.
3. Why Do We Need Insurance?
Many of us have never had to make a claim on our insurance. Therefore when we continue to write the check month after month, we feel as if we are pouring money right down the drain. Even though you've never had to make a claim on your insurance, there is a good reason that its there. Naturally insurance is there to protect yourself and your investment, but let's face it; many of us wouldn't bother with insurance if it wasn't required by law or the bank.
Not only does insurance protect you and those around you, it is an unsung hero of America's economic success. Think about it for a second, who else has a stake in protecting your property; if you lease your car or mortgage your house, then the bank does. They want to make sure that their investment is protected. Banks wouldn't want to lend out money unless they knew that there was a really good chance that they'll get their money back. Consequently, insurance provides protection for the consumer lending process which is the backbone of the American economy. You might say that insurance greases the wheels enterprise.
What is Insurance and Why Do We Need It?
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There are three major functional areas in accounting, which need to be considered in modern day accounting for any business. The three are financial, cost and management accounting.
The first area, namely financial accounting, is primarily useful for ascertaining the results of the business on a periodical basis; for example, one year. This will help to determine the future course of action in the long term. In economical terms, financial accounting treats money as a factor of production.
Accounting
Cost and management accounting are tools to enable management to take decisions on a day-to-day basis. Cost and management accounting are not useful for their own sake. These two functions assist management in the conduct of the business along with other key factors involved in running of the business. Key factors could be demand, supply, competition, availability of raw material, logistics etc.
Accounting - Three Major Areas
The second area, namely cost accounting, seeks to ascertain the value of direct costs and indirect costs involved in production . From this value, management can make an informed decision regarding the improvement of production performance. In economic terms, cost accounting is a measure of economic performance. This information gives management a clear indication of economic performance of the production resources of the business.
Costing also helps the sales manager in setting prices. But since costing is a measure of economic performance, it cannot be considered as an absolutely accurate basis for setting prices. This is because selling prices are more of an economic decision. It would not be amiss to mention here that prices depend basically on market factors. Prices depend more on demand, supply and competition and less on costs. For example, high demand coupled with lack of competition would mean that business could charge higher prices for its products, well above the costs.
The third area, namely management accounting, is closely interrelated with costing accounting. Although it has evolved from cost accounting, management accounting has a broader role to play in management decisions. It measures economic performance of the business enterprise as a whole, vis-a-vis the economic environment in which the business operates. This function of accounting seeks to combine the financial and cost information in a broader aspect.
Finally, management accounting is instrumental in assisting and advising management in making important business decisions. It makes management aware of the economic implications and consequences of their decisions. In economic terms, it implies a close study of money as an economic resource, while simultaneously treating it as a measure of economic performance. This enables management to measure it as an economic factor of production, e.g. the rate of return on capital employed.
It is thus seen that accounting has a distinct role to play in three different areas, which are equally vital. With the advent of computerised accounting, it has become very easy for management to monitor the accounting information on the tips of its fingers. Financial accounting programs enable financial statements and various cost and MIS statements to be produced almost instantly at push of a button. Now, only the laborious part of accounting is data entry. Financial managers must ensure that meaningful data is input into the system to produce meaningful information. Proper categorisation must be done and keying errors avoided at all costs, ensuring providing accurate financial information to management.
Accounting - Three Major Areas
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Are you an experienced staff accountant looking to write or improve your resume or just starting your career and need a resume for your new job search or summer internship? This resume tutorial will give you useful advice and sample resume sentences to help you put your resume together.
First, you need to communicate your objective. It could be a typical "Objective" category that reads something like this: "Seeking to secure a position as a staff accountant."
Accountant
Better yet, you should use an "Objective Statement" that prominently states the position you are seeking such as STAFF ACCOUNTANT.
How To Write A Resume For A Staff Accountant
If you are looking for your first staff accountant position, you can add a short blurb on the line above such as "Position of Interest" or "Seeking the following position" in plain text so it does not compete with the objective statement, which should be centered, all caps, about 15 point font size, and bold so the reader sees it immediately.
The next category should be your Summary of Qualifications category. You can introduce this important part of your resume with a statement instead of using a Summary of Qualifications heading. This statement can read something like this: Seeking to secure a position as a staff accountant offering the following qualifications:
The first line of your Summary of Qualifications section should indicate your years of experience in a given field. The rest should continue outlining your qualifications such as educational credentials, specialized knowledge, and technical skills. You can include a line about your attributes, but do not make it the focus. Hard facts are more important. Here is how these sections should read:
Eight years of accomplished experience in the field of accounting.
* Bachelor's degree in Accounting; minor in International Finance.
* Experience in GAAP Accounting and monthly closing processes.
* Four years of general accounting staff supervision.
* Technically astute with solid analytical and problem solving skills.
If you have a lot of experience, you can call the experience category "Professional Experience," but if you are just starting out, it might be best to call this category "Work History." Depending on your experience or number of jobs held, the following should help you to think about the areas of your job function that should be covered in your staff accountant resume:
* Manage Accounting Department reporting directly to Controller.
* Prepare consolidated financial statements and SEC reports.
* Conduct audits across health care and technology industries.
* Instituted a financial reporting system that met GAAP standards.
* Established financial applications for MAS90 mainframe system.
* Performed account reconciliations and general ledger entries.
* Improved processes in relation to internal audits compliance.
* Posted to General Ledger accounts and performed cash flow analysis.
* Monitored proper controls and systems to effectively manage inventory levels.
* Prepared monthly financial statements and reports (variance analysis and sales).
* Ensured tax, legal and company compliance with payroll issues.
* Analyzed business performance to maximize operations.
* Maintained weekly cash flow management and reporting activities.
* Issued invoices, purchase orders and shipping charges.
Following your experience section, you should list your education, accounting credentials, and computer skills. For visual appeal, consider adding a border around your resume if it is one page and choose Verdana pt. 10 for your font for a neat, clean look.
How To Write A Resume For A Staff Accountant
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The top 10 qualities of a great accountant are more about one's nature than the skills they have acquired, although these qualities can be cultivated if you are striving to pursue a career in this field. In order to be a great accountant you need more than just mathematical, analytical and organizations skills. You must possess certain qualities that will separate your work from that of lesser accountants. The following are the top 10 qualities of a great accountant:
1. Ambition: Without ambition you'll never achieve your goals in accounting or otherwise, so aim high.
Accountant
2. Communication Skills: You must be able to communicate effectively with clients and with colleagues in order to be an effective accountant.
Top 10 Qualities of a Great Accountant
3. Competitiveness: Having a competitive spirit will help you achieve your goals and better serve your clients as best as you can.
4. Initiative: Any great businessperson is able to push himself or herself harder and become stronger in order to perform to the best of their abilities.
5. Intellect: Knowledge of accounting is a must, but knowledge of business, economics, politics, technology and other global issues will also help you get ahead.
6. Integrity: With a sense of personal and professional integrity you will be able to ethically conduct business and build a positive reputation.
7. Leadership Skills: You must be able to lead teams, inspire people and command a room in order to be successful in any business, including accounting.
8. Likability: No one will want to work with you or for you if you aren't likable. Any successful accountant must be able to network, build contacts and work well with others.
9. Not Afraid to Take Risks: Leaders in accounting and other business professions have entrepreneurial spirits and know when it's the right time to take a risk or to play it safe.
10. Reliability: People will be counting on you, so you must be reliable and always ready to get the job done in order to be a great accountant.
If you do not have all of the preceding top 10 qualities of a great accountant, you must cultivate them if you are going to be successful in this business.
Top 10 Qualities of a Great Accountant
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When learning accounting for the first time, the terms 'debit' and 'credit' can be a bit confusing. Why? Because when you go to the bank and deposit money, the teller will tell you, "I am crediting your account X amount of dollars," but if you are taking money our of your account, the teller will tell you, "I am debiting your account X amount of dollars." Also, with debit machines all over the place, and credit cards in everyone's pocket, the two accounting terms take on a whole new meaning.
However, what we've learned about these two words so important in the accounting world, debit and credit, have to be unlearned quickly. Why? Because in accounting, the term debit is used to describe a bank account and that money owed are actually credit accounts - the exact opposite of what we've been taught elsewhere.
Accounting
In accounting terms, neither credits nor debits are 'bad', but they need to equal each other in order to balance themselves out in the end. Every itemized transaction, no matter if it's a deposit or a bill to be paid has both a debit and credit posted in the accounting world. This is what is called 'double-entry accounting' - so when you go to the bank, and the teller says, "I am crediting your account X amount of dollars," she is also debiting an entry of a similar amount without telling you this. The same goes for when the teller tells you, "I am debiting your account X amount of dollars," - the accounting will show that a credit of the same amount is being made elsewhere at the same time.
Learning Accounting: Debit and Credit Basics
The easiest way to figure out debits and credits in accounting terms is to figure out the following: what did you receive, and where did it come from. The debit is what you received, and the credit is where you received it from, in accounting terms. So for demonstration sake, let's say you bought a CD with your credit card. The CD is what you got, so it will be a debit in the accounting world, and the credit will be applied to the liability you carry on your credit card for the exact same amount.
The bank can easily confuse people learning about credits and debits in the accounting sense of the words, especially when discussing liability. For instance, when you put money in the bank, the bank's liability to you increases, and since liabilities are credits, they are crediting your account (in accounting terms). And when the bank lowers their liability to us (by us taking money out of the bank) the banks are debiting the liability account, from an accounting perspective.
Basically it comes down to being able to figure out what you got and where exactly it came from; if you can figure these out for every transaction, then you've got the accounting terms of credit and debit down pat.
Learning Accounting: Debit and Credit Basics
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Depreciation is the accounting practice of spreading the costs of fixed assets over their useful economic life. Fixed assets are items that a business needs to purchase for long term use, things such as buildings, machinery, equipment, furniture and tools. Depreciation is a non-cash or bank expense that allows for a provision to be made for the replacement of any fixed asset, thus enabling a business to maintain its future operations.
The characteristics of depreciation are:
Accounting
It is related to depreciable fixed assets only.
It is a fall in the book value of a depreciable fixed asset.
It is the permanent and continuous decrease in the book value of an asset.
Accounting - Depreciation
The main causes of depreciation are:
Physical wear and tear over a period of time i.e. over a number of accounting periods.
Changes in the economic environment faced by a business.
Expiration of legal rights.
The need for charging depreciation in accounting records can arise as a result of any of the following objectives:
To ascertain the true results of the business operations.
To ascertain the true cost of production.
To present a true and fair view of the financial position of a business.
To accumulate funds for replacement of assets.
To comply with legal requirements.
To calculate the depreciation charge three important things must first be determined:
The original cost of the asset.
An estimate of its economic useful life.
An estimate of its residual value.
Depending upon their own preferences, businesses are free to choose from a number of methods when calculating depreciation. Two of the most common methods are as follows:
Straight-Line method - Here the depreciation charge is the same each year.
Amount of depreciation= Original cost-Residual value
Estimated useful life
Reducing Balance method - This is a slightly more complicated but more realistic method of calculating depreciation. When using this method the depreciation charge is higher in the early years when it is thought that most assets lose most of their value.
Annual depreciation= Depreciation rate x Book value at the beginning of each year
Where the book value is the Original cost less the Accumulated depreciation
The first step in the procedure of recording transactions is to journalize and the second step is to post the transactions in the ledger. Ledger is known as the 'principal or chief' book of accounts. In ledger the financial information is classified by its nature and relevance.
The statement which records the transactions at one place relating to a particular subject is known as account. The book which contains all the accounts is known as ledger and the procedure of writing up the accounts is known as posting.
Accounting
The ledger is the most important book of account and is the destination of the entries made in the Journal or Sub-divided Journals. It is a collection of all the three types of accounts --Personal, Real and Nominal. If you are faced with questions like:
Accounting Ledger and How to Write Ledger
- How much a particular customer owes you?
- What is the amount payable by you to anyone of your suppliers?
- What is the amount of goods purchased by you during specific period ?
- How much sales you have affected during, say, last three months?
- What has been your expenditure on, say, labor during the period?
Then the quicker and easier way of ascertaining the relevant information is to turn to your ledger, find out the balance of the Customer's A/c or Supplier's A/c or Purchases A/c or Sales A/c or Wages A/c.
How to write Ledger
In ledger we maintain accounts. Each account is allotted one or more pages depending upon the requirement. Ledger is usually ruled in anyone of the following two alternatives. First alternative is followed in those cases where balance is required to be ascertained after every transaction e.g. Banks.
Second alternative is followed in those cases where balance is required to be ascertained only periodically, say after a month or quarterly. In your study of book-keeping and accountancy T- shape accounts will be used (alternative-two).
The transactions are entered in the ledger accounts in order of dates. Every entry must be dated which must be shown in the column meant for date. This is the first column on the left of each side of the account.
Record the relevant amount on the left-hand side of the account which, according to the journal is to be debited and record the amount on the right-hand side of the account which, as per journal, is to be credited (use 'amount columns' for this purpose). In ledger account each entry on the debit (left-hand) side commences with the word "To" and one the credit (right- hand) side with the word "By". In the 'particulars column' reference is made to the other account involved for providing cross reference. In the 'folio column' would be entered the page of the journal (or page of the relevant sub-divided journal) from which entry has been posted and in the folio column of journal, the page number of the ledger is written on which the relevant account appears.
Following the above procedure of recording the entries in the ledger will in fact amount to this The account receiving the benefit in shape of cash or goods will receive the debits and the account imparting i.e. giving away the benefit will receive the credits.
Accounting Ledger and How to Write Ledger
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