Accounting can simply be described as the keeping of records about all financial transactions relating to an individual or entity. There are also predetermined rules and procedures that govern how transactions should be accounted for. This is also known as debit or credit, income, expenditure, asset, or liability. The rules for determining whether the item is an asset or an expense are also established.
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Accounting can be defined as the recording, summarizing and analyzing of financial transactions. Accounting describes how a business records, organizes, and reports these transactions to regulators or other parties. It helps to understand the business intangible reporting process. This includes tracking assets, liabilities and income. It is essential to have a basic understanding of accounting in order to be able to comprehend the financial terms and participate in the business world.
A checkbook that is open with a blank check. The checkbook's top flap has a calendar that shows the years 2004-2006. Accounting is also known as the language for business. It is the information system that processes information and communicates results to decision-makers. It can be described as the business scorecard. Accounting is the best way to measure and report the increase in wealth.
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Financial accounting is meant to be understood, accessible, accurate, and useful for parties outside the organization. Some organizations, such as the iconic Enron, Corp., were not faithful in their financial representations to investors. Individuals, too, have lost millions of dollars in investment. Even though this still happens, it is because, long before Enron, and other financial disasters in the past, the government intervened and created an accounting framework known as Generally Accepted Accounting Principles. These principles, also known as GAAP, provide a set of standards for the industry. Publicly traded companies must submit their financial statements for examination by a Certified Public Accountant before they are submitted to the public. A letter from the CPA firm attesting that the financial statements comply with GAAP is required.
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Managerial accounting is not governed by published guidelines. It must be as useful and accurate as financial accounting. However, it can also come from other sources like marketing data, volume data and demographic data. Production data includes information such as turn-around times, cost budgets and analysis of equipment purchases. Some reports are produced monthly so that managers can keep track of the trends. Others are more ad-hoc.
Accountants transform data into information. Think about the volume of financial information generated every day by customers buying products at large department stores like Macy's, Home Depot, or online through Amazon. The store must record the sale and either buy the product to sell it to you or make it (i.e. They also have to track and report costs like McDonalds. They must pay rent, insurance, utilities and transportation costs. There are also costs associated with outside consultants such as accountants. When it comes to such costs, there is a common saying in business: "You must spend money to make profit."
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