Fundamentals of Accounting


Accounting Fundamentals

• What is accounting?

Accounting is the method by which the financial information of an economic entity is recorded, classified, interpreted and communicated; this in order for it to be used by managers, investors, government officials and other individuals and companies to help making decisions about resource allocation and utilisation.
At the heart of accounting is the measurement of financial transactions, which represent transfers of legal title, according to a contractual relationship. Expressly excludes those non-financial transactions, according to several of its principles generally accepted.

• Types of accounting

Usually when talking about accounting, it refers to Financial Accounting (some call it External Accounting), whose goal is to process the information in financial transactions to generate financial statements, mainly used by external entities (banks, tax authorities, rating, etc.).
Unlike financial accounting, administrative: 1) handles confidential information that is not available but for a few, 2) is little or not subject to formalities or regulations even in large public companies, i.e., usually information structured to suit each organisation.

• Accounting Concepts

To maintain reliable financial information, it is necessary to record daily transactions in the books. Today, most companies have this automated process, with the use of accounting and administrative systems.

Registration is based on double-entry systems, dating from the Middle Ages. According to this, the value of a business entity can be described in terms of five accounts: assets, liabilities, capital, income accumulated and accrued expenses. Each financial transaction (which changes the value of the entity) leads to at least two entries, a debit to an account and a credit to another. The sum of all debits must be representative of all loans – which in turn allows you to check for errors.

Accounting is handled by accountants, professionals who must be accredited by appropriate bodies in each country to perform this task. These bodies in turn determine a set of generally accepted principles, covering the basic rules to ensure the reliability of accounting information.

It is a means to collect, record, classify, organize, analyse and present in terms of money transactions and events that are wholly or partially a financial character. Therefore, it can be called the language of business or financial decisions. It is also important to clarify that the accounting should provide clear, reliable information that allows us to get a focused understanding of the financial statements and this activity must meet standards of behaviour such as honesty and business ethics to ensure reports be made clearly and accurately.

Now these reports are used by multiple users, such as the state administration, the union, investors, creditors, tax authorities, individuals and businesses.

• Significance of Financial Information

This represents the quality or the ability to show the evolution of the company or individual in its present state and the results of operations at different points of time. You can say that’s where it represents the company or entity.

• Relevance of Information

Consists of selected elements that allow the user to get the message and operate based on it to achieve their own purposes.

• Accuracy of Information

One of the essential qualities of essential financial information implies the fact that it is presented in the light of using the correct measurement tools.

• Comparability of Information

Consists and specifies that accounting information must be comparable from one business to another and that the financial statements of a business of a company should be comparable from one period to another.

• Opportunity

The timeliness of accounting information is the essential aspect and that it reaches the user’s hands so they can use it to make decisions in time to achieve their ends.

The accounting allows us to know the stability and solvency of the companies, income, payments, receipts; so that we can meet the financial capacity of the company. A company such as The Cheap Accountant is excellent at achieving this.

The primary objective of accounting is to provide reasoned information, based on technical records of operations performed by a private entity or public and for this information to comply with the administrative and financial goal.

Among the various functions of the principal accounting is information you supply reasoned of transactions.

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