What Should Everyone Know About Accounting?

Almost all people know that accounting is a subject and it is linked up with the way you run your business venture. But what is the meaning of accountancy in reality? Accounting is nothing but an art of systematic way of documenting and checking monetary enterprise transactions. This plays a very important role in modern education and learning system. All the countries need accountants today because it contributes greatly to commercial development.

How to start career in accountancy?
Accounting offers many parts like public, administration, internal audit and management accounting. The traditional methods of accountancy include teaching of fundamental principles and theories of accounting. Accountancy is mainly concerned with technical skills and it is mainly adapted to many variations in commercial, statutory and business economies. If you want to start your career in accountancy, the very first step would be to find a university. You may attend accountancy course in any local university or college. Opt for this or attend any school in abroad. Be sensible in deciding the university and college sensibly. You may also decide the place where you would like to settle down and the time when you want to be there. Either lodge at dormitory or rent an apartment according to your budget.

Decide on the program and decide how to prepare and organize your financial records in such a way that it incorporates collation or computation of figures, analyses and taxes. Modern techniques can be applied in any accounting school. Majority strategies are based on communication, decision making, ethics, skills and auditing concepts. The instructional system of accountancy has same objectives and it instructs students about all the guidelines. The students may learn how to develop the skills by various accountancy routine. The professional accountants can take advantage of contemporary accountant routines. Accounting training operates as effective management tool for the executives of company. The academic aspects of accountancy training are specialized accountancy, general accounts and professional accounts. The universities offer students benefits from the doctorate programs and instructional training.

Basics of Accounting:
1.    Financial and managerial accounting:
Accounting has two main disciplines – Financial and Managerial. The managerial accounting takes a track on internal things and financial accounting is what is presented to externals like investors, banks and the government. In managerial accounting, you need to enter day to day expenses and sales but in financial accounting; you just need to make a summary of all those transactions.

2.    Double entry bookkeeping:
Every transaction is entered in two accounts and it must be balanced eventually. This ensures that you are on right track. Accounting is as old as human civilization and the double entry bookkeeping was invented in the 14th century. All that an accountant needs to do is to make sure that the transactions are entered in two accounts and it gets balanced eventually.

3.    Assets & Liabilities:
The assets and liabilities form foundation of accounting. Assets include everything that you own like home, car, factory, etc. Liabilities include the things that you owe to others like loans and many other things. Many transactions involve both the assets and liabilities. For example, if you buy a home on loan, you increase both the value of asset and liability.

4.    Equity:
The gap between assets and liabilities is known as worth equity. Let’s take an example for this. You own a car that is worth $1,00,000 and your loan is for $30,000 then the equity on your car is $1,00,000 -  $30,000 = $70,000. If your overall equity is less than 0 then it means that you are broke.

Equity = Assets – Liability

5.    Credit Vs Debit:
Credit increases the value of liability and debit increases your assets. Debit means adding positive numbers to account and credit means adding a negative number. Credit was traditionally written on right side of ledger and debit was in the left side.

6.    Ledger:
Ledger is a principal book where you can enter your money transactions. Companies usually maintain 3 types of ledgers. The general ledger tracks all expenses, income, assets, equity and liability. The sales ledger keeps track of customers who make purchase but are still not paid for the goods. The purchase ledger keeps track of purchases made but not yet paid. From a ledger, you can make financial statements for summarizing the overall position of the company. The international standards have made it mandatory for companies to maintain all four main types of financial statement.

7.    Balance Sheet:
Balance sheet is nothing but a snapshot of a business enterprise. It states how much asset of company has in various categories like bank account, building, equipment and any amount that they receive from customers and the liabilities like short term loan, long term loan, amount that you need to pay to the suppliers and overall ownership equity shows how many shares of company were held and how much money did owners give.

8.    Income statement:
The records of income and expenses are maintained in various categories in the income statement. The profits are written down at the bottom and this gives you the final result. The topline shows overall sales of the company.

9.    Cash flow statement:
If you have ever run any business, you would know that cash is the king and it is crucial to understand how business manages their cash. For example, if your enterprise has made sales of $1 million but none of your customers have been repaid then you can’t be happy for making $ 1 million sales. The cash flow statement records how company gets money and how it spends it. The cash flow statement shows how company grows its cash and how it spends it on getting new equipments, repay loans, pay more wages and many other things.

10.    Accounting is not an exact science:
Accounting is not an exact science but it involves a lot of judgement to be done. For example, if your 3 customers have not been paid since 6 months then you should take a judgement on account recievable and write it off. You should understand tax policies, increase or decrease in price of inventory and the lifetime of assets owned by you.

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