![]() ![]() Customer AccountĪn account can be considered the same as a customer. A business may have hundreds or even thousands of accounts set up in its accounting system. These records are stored in the general ledger. Thus, the accounts receivable account stores information about billings to customers, as well as reductions of those billings due to payments from customers. Account RecordĪn account can be the record in a system of accounting in which a business records debits and credits as evidence of accounting transactions. Tax accounting involves planning to reduce or defer tax payments, as well as filing many types of tax returns.An account can have several meanings in the accounting profession. Internal auditing involves examining internal records to see if transactions were processed correctly, and whether the established system of controls has been adhered to by the staff. Cost AccountingĬost accounting involves the review of product costs, examining operating variances, engaging in profitability studies, bottleneck analysis, and many other operational topics. There are numerous more advanced topics that fall under the umbrella of accounting, as noted below. ![]() The presented basics of accounting only note the barest outline of the functions performed by the accountant. It is especially useful when the amount of net income appearing on the income statement varies from the net change in cash during the reporting period. The statement of cash flows presents the sources and uses of cash during the reporting period. It presents the financial position of an entity as of a point in time, and is closely reviewed to determine the ability of an organization to pay its bills. The balance sheet presents the assets, liabilities, and equity of a business as of the end of the reporting period. It measures the ability of a business to attract customers and operate in an efficient manner. The income statement presents revenues and subtracts all expenses incurred to arrive at a net profit or loss for the reporting period. Once all of the transactions related to an accounting period have been completed, the accountant aggregates the information stored in the accounts and reformats it into three documents that are collectively called the financial statements. Requires the collection of time worked information from employees, which is then used to produce gross wage information, tax deductions, and other deductions, resulting in net pay to employees. Requires matching received cash to open invoices. Requires the creation of an invoice to be sent to each customer, documenting the amount owed by the customer. Requires the issuance of purchase orders and the payment of supplier invoices. As part of these transactions, they are recorded within the accounts that we noted in the first point. The accountant is responsible for producing a number of business transactions, while others are forwarded to the accountant from other parts of the company. Examples are rent expense and wages expense. This is the amount of assets consumed during the measurement period. This is the amount billed to customers in exchange for the delivery of goods or provision of services.Įxpenses. Examples are common stock and preferred stock. This is assets minus liabilities, and represents the ownership interest of the owners of the business. Examples are accounts payable and loans payable.Įquity. These are obligations of the business, to be paid at a later date. Examples are accounts receivable and inventory. These are items purchased or acquired, but not immediately consumed. Accounts fall into the following classifications:Īssets. This means setting up accounts in which financial information is stored. System of Record Keepingįirst, there must be a rational approach to record keeping. The following discussion of accounting basics is needed to give you a firm grounding from which to understand how an accounting system works and how it is used to generate financial reports. The resulting information is an essential feedback loop for management, so that they can see how well a business is performing against expectations. Accounting is the practice of recording and reporting on business transactions. ![]()
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