What is Accounting?

Accounting is the ability of a person or assembly to perform work related to mathematical calculations, statistics, graphics, and numerical records to order and establish all the movements of a company or business.

The word comes from ” accountant “, that is, from the accountant’s questions, a person who keeps calculation books on a small business or company, banks and others.

Types of Accounting

Accounting is classify according to the area where it is use:

Business Accounting

Includes calculations of costs, expenses, income, production for the year, expenses or great income (tax, operating, financial penalties, exchange rate gains and losses).

Financial Accounting

Financial Accounting (1)

It includes the gross export surplus, added value, commercial margin, self-financing capacity, resources, assets, liabilities, depreciation, company solvency, financial ratios, making factors and the operating cycle.

Bank Accounting

For the management of different business funds, loans, titles, bonds, and various types of currencies. They also work with econometric replicas that establish market variables. Due to the above, rigorous accounting controls are made to avoid errors.

Matrix Accounting

It is the one that uses matrices to facilitate more only in rows and columns of debits and credits in its books.

Cost Accounting

It can be link to business or financial accounting, covers everything internal to the company, materials, salaries, facilities, and is use to compile data on production, investment, purchase of merchandise, social charges, financial expenses, depreciation, and provisions for the year, in progress. But on the other hand, it includes subsidies, turnover, income from borrowed capital, and obligations to other companies.

National Countability

It mentions the accounting of the so-called “State financial plan”. Its economic declaration is crucial for a nation and requires the legislature’s preparation, discussion, and approval. And then an execution. In this case, the control is governe by a court of accounts where budget balances, financing of public spending, direct and indirect taxes, and tax revenues such as VAT (value added tax) are disclose every year. This concept remains related to the “trade balance”, similar to the state budget.

What is Accounting for?

There are four fundamental purposes of accounting :

  • Documentation
  • Declaration and information
  • Control
  • Provision

The documentation serves to have everything organized: to know where the inflows and outflows of money or capital of the company come from .

Likewise, it is important to declare and inform the tax authorities of these movements, either at the end of the accounting cycle , the quarter or when required.

It is vital to keep track of these inflows and outflows of money to track what is known as a budget, that is, how much money is available.

Finally, it ensures that the money is in the right place at the right time and that the company has access to it.

In this way, accounting can be internal so that the company itself knows its economic situation or external to provide information to those who need it.

The Goal of Accounting

In turn, accounting has a series of ultimate goals that can be distinguishe into four categories.

The first is the calculation of time, that is, accounting chronologically for changes and increases in assets and liabilities in a company.

Second, the company must document each transaction and report it to the authorities.

The representation of the accounts is the third objective since the numbers obtaine in a time need. To be shown to those who need them, for example, to investors.

According to the Law

For any entry to be legal and comply with the legislation, a series of characteristics must be met. First, any seat or exit must be continuous. That is, there can be no jumps among them.

Likewise, the accounting must be complete and based on when the movement to be accounte for occurred. In addition, It has to be organize factually, that is, based on facts. Nothing is based on assumptions.

Documentation is daily. Although it does not mean that it has to be done every day. It does mean that each movement must be counte according to the day.

On the other hand, it needs to remain taken into account that no registered movement can be delete. It prevents fraud. Finally, everything has to be legally file and organize, and there can remain no seat without its corresponding receipt, invoice or document.

Conclusion

It also called accounting, measures, processes, and communicates financial and non-financial information about financial institutions such as businesses and corporations.

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