Accounting and Bookkeeping
Accounting and bookkeeping have become synonymous in the past few years. Both fields are complex but vital to the running of any company. Accounting provides managers with information necessary to make sound business decisions. While bookkeeping lessens this workload by showing people the exact amount of money being spent per day, it also requires extremely accurate data collection methods to be used as a guide in future decision making.
Bookkeeping involves the systematic recording of daily financial transactions, usually by the individuals in charge of the company's accounts. It is comprised of: recording of daily financial transactions, identification of sources of data, compilation of these data, and analysis of the collected information for analysis, preparation of reports, and finally presentation of these reports to management. Management accounting uses financial data gathered from all aspects of the enterprise to make informed decisions regarding resource allocation. In order for managers to reach decisions regarding allocation of resources, they must be able to calculate the present value of future cash flows.
The objective of accounting is to record the financial transactions of a firm using organized documents, and then present this information to management as a source of information for making tax planning and other business decisions. Accounting and bookkeeping must be done periodically, usually once a year. All transactions are recorded in source documents, which include the income statement, balance sheet, and statement of cash flows. Auditors, who specialize in this field, examine these documents for inconsistencies and errors and ensure that all transactions meet the requirements of the laws of the countries where the company operates.
There are many different types of accountants, including professional tax accountants, government accountants, internal auditors, financial accountants, management accountants, marketing or sales accountants, fiscal accountants, environmental accountants, insurance accountants, human resource accountants, mortgage accountants, real estate accountants, security or credit accountants, internal auditors, financial analysts, and business plan accountants. All accountants, no matter which type they may specialize in, have one set of books, called the journal of accounts. The journals of accounts are the system by which financial information is recorded, analyzed, and made available to management. While every accountant does take an interest in seeing that the journals of accounts are accurate, most accountants do not spend enough time analyzing the information contained in the journals of accounts.
Internal auditors are responsible for identifying potential frauds, tax crimes, misstatements, and other fraudulent transactions that may occur during the course of business operations. These internal auditors perform their duties in two distinct ways. First, they examine the financial records at hand to make sure that all transactions were conducted in accordance with all applicable laws. Secondly, they randomly check the books at random for any other irregularities or discrepancies that they may find.
Forensic accounting consists of the examination of financial records, either of individuals or of firms, for signs of fraud or manipulation. For example, if an accountant observes certain kinds of transaction that are inconsistent with what is recorded in the books, then he or she can easily conclude that some accounting or bookkeeping error has occurred. Such errors can either be accidentally made or deliberately planned. Such individuals and firms who engage in forensic accounting are calling forensic accountants.
There are two kinds of people that need to study accounting: those who have to do it day in and day out, and those who have to do it only occasionally. A general accountant may have to do accounting and bookkeeping work at the same time every day, or may have to carry out only the day-to-day record financial transactions. A person who does not have to do the record financial transactions but is responsible for the management of a particular firm's funds sometimes has to devote a part of his or her time to accounting and the preparation of financial reports. Sometimes these people have to reconcile bank statements because these statements cannot be prepared unless the records of the financial transactions are available.
When an accountant carries out the necessary day to day tasks, he or she has to keep track of all financial transactions that have taken place. In addition, all records of such transactions have to be kept in various places, such as ledgers, computers, or other devices. In addition, every account must be updated at regular intervals. In this kind of work, someone has to make sure that all the transactions are recorded accurately and correctly. In essence, accounting and bookkeeping consist of the recording of financial transactions. This record is known as the ledger.