Know Your Basic Accounting Functions

are the basic functions of accounting bookkeeping and financial reporting managers and investors. However, the accounting department of the business is usually responsible for payroll, cash receipts, expenditures, purchasing and inventory, and asset accounting. If these functions are done in a timely and efficient operations will survive.

Many of these functions, and many accounting, focus on the business. These are the economic exchanges between the business and individuals or other businesses that work. Accounting requires an understanding of how these transactions are accounted for. Most companies carry on economic exchanges with the six basic groups:
1) Customers who buy products and services,
2) Employees who are paid wages and benefits are given to work with business,
3) suppliers and distributors, who sell the business,
4) sources of debt capital, which loan money to businesses,
5) the sources of equity capital, investing in the Company expects earnings from invested capital, and
6) The Government, which collects various taxes.

There are other events that have economic impact on the work that must be recorded, such as claims, uninsured flood or other loss, severance pay for laid-off workers, and other non-planned events and circumstances.

is the first basic function of accounting is also to monitor and record all of the above economic exchange, while the second is to report. Accountants prepare financial statements for managers and company reports investitorima.Tri most basic financial statements are the statements of financial position or balance sheet, income statement and cash flow statement. Everyone in business should understand and know how to read these three statements.

balance

balance sheet and statement of financial condition, summarizes the assets owned by the business on one side and the source of property to another. Sources of funds are divided into two basic categories: liabilities and owners equity. Some assets come from borrowing money or buying on credit has not been paid yet. These are obligations. The remaining funds come from the owners of capital, which consists of money invested in the business of the owner and operating profit is earned and maintained. It is important to remember that the balance sheet as a snapshot and just shows how much the job is worth on the balance sheet is drawn up.

usually see the balance sheet as follows:

Primary Balance

List of assets List of liabilities

owners of capital
Total Assets = Total Liabilities + Owner's equity

Sometimes you will also see the owners of capital is called net worth. It is calculated as assets - liabilities = net worth. While this May means that the business is worth the amount recorded in the owner's equity accounts, it does not necessarily mean the business could be sold for that amount. Much more needs to be solved to determine the selling price of the business. However, it is important to balance a report that shows how much you have and how much you owe at a particular point in time.

Income Statement

profit and loss account or income statement, revenue and expenditure measures. It sums up the profits of business activities over time. One part of the report lists all income: earned, passive or portfolio. The second part of the report lists all costs. It's often like this:

The basic profit and loss

profit
- Costs
= Net profit

Preparation of profit and loss account on a regular basis to help in measuring the financial progress. Most managers and investors pay more attention to profit and loss account, and you'll often see a shortened version of the financial pages of reporting top line sales and bottom line net profit.

Statement of Cash Flows

Cash flow refers to cash flow comes as income goes as troškovi.Izvješća cash flow statement shows the sources and uses of cash in operations during the financial razdoblja.Uspješno business must manage and profit and cash flow, not just each other. Cash flow statements often look like this:

The basic cash flow statement

Part 1 Business activities. Cash flow from profits of the business transactions
Part 2 Investment activities. Cash inflows and outflows from investing activities.
Part 3 Financing activities. Cash inflows and outflows from financing activities.

by adding three types of cash flows from the air determines the bottom-line net increase or decrease in cash during the period. Net cash flow from part one, the business activity does not always correspond to profit as reported in the income statement. This is because the actual cash flow and cost of sales are in different time table that, when sales revenues and expenses recorded in the books. Profit performance of the business gets the most attention, but it is also important to understand and know the cash flow from profit and which is located in this important statement.

do not need an MBA, and should not be a CPA to start a business. However, an understanding of basic accounting will help you with the financial aspects of your business, investment, tax, and financial management. You will be at the expense unless you understand the basics of accounting. If the accounting function and the three basic accounting reports covered in this chapter are new to you, it is imperative you seek funds to learn more about this subject. If you already have a basic understanding of accounting principles and statements, make sure you are keeping on top of them in your business and personal life.

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Branches of Accounting, Uses of Accounting and Limitations of Financial Accounting

Accounting vs. Book-keepingBook taking care with my record (and the proper set of books) of those transactions that result in the transfer of money or money's worth. While accounting is a comprehensive perspective. It extends to classifying, summarizing, analyzing, presenting, and even the accounting data.

Accounting Accounting vs

body of knowledge (consisting of principles, postulates, assumptions, conventions, concepts and rules) governing the science of classifying recording and analyzing financial transactions of the accounting. While the practice of art and science of accounting is termed as accountancy.To meet the increasing demands made ​​on the accounting of the various stakeholders (such as owners, management, creditors, tax authorities, etc.) of different branches came into existence. Financial AccountingThe object of financial accounting is to determine the result (profit or loss) from operations in a given period and the state's financial position (balance sheet) as at the end of the period.

cost accounting

object of cost accounting is to find out the price of goods produced or services provided by the company. It also helps control business costs points to avoid losses and wastes.Management AccountingThe subject of management accounting is to submit relevant information in adequate time for management to enable the decision and force control.In this web example, we are concerned only with financial accounting. Cases of financial accounting as noted above can only be achieved record financial transactions in a systematic manner in accordance with a set načela.Snimljene information must be classified, analyzed and presented in a way that operating results and financial position can be determined.

uses accounting

Accounting plays an important and useful role in the development of information to provide answers to many questions faced by the users of accounting information.

(1) How well or badly the company's financial condition?

(2) activity has resulted in profit or loss?

(3) How well the different departments of business are performed in the past?

(4) What activities or products are profitable?

(5) of existing products that should be abolished, and the production of goods should be increased.

(6) whether to buy the components from the market or to produce the same?

(7) Does the production cost is reasonable or excessive?

(8) What is the impact of existing policies on the profitability of the business?

(9) What are the likely result of new policy decisions on future earning capacity of the business?

(10) In light of past performance of the business to plan for the future to ensure the desired results?

listed several examples of types of issues faced by users of accounting information. It can be satisfactorily answered with the help of appropriate and necessary information to accounting.

In addition, accounting is also useful in the following aspects :-

(1) Increased volume of business results in a large number of transactions and can not remember everything a business man. Accounting records eliminate the need for remembering various transactions.

(2) Accounting record, prepared on the basis of a single practice will enable the business to compare the results of one period to another period.

(3) The taxation authorities (and the income tax and sales tax) are likely to believe the facts contained in a set of accounting records, if maintained in accordance with generally accepted accounting principles.

(4) conservation record, backed up by appropriate and certified vouchers are good evidence in court.

(5) If a business is to be sold as a going concern then the value of various assets as shown in the balance sheet helps in bargaining proper price for the business.

Limitations of Financial Accounting

Advantages of accounting discussed in this section does not indicate that accounting is free from restrictions.

Here are the limitations:

Financial accounting permits alternative treatmentsAccounting is based on concepts and follows "generally accepted principles," but there is more than one principle for the treatment of any item. It provides alternative treatments to, within the generally accepted principles. For example, the closure of the state of business May be valued by any of the following methods: FIFO (First-in-first out), LIFO (Last-in-first out), average cost, standard cost, etc., are not comparable alirezultati .

financial accounting does not provide timely information

This is not a limitation when high powered software application like HiTech Financial highlighting is used to make on-line and at the same account where the balance is available almost instantaneously. However, the accounting manual has this drawback.

Financial Accounting is designed to provide information in the form of statements (balance sheet and profit and loss account) for a period of usually one year. Thus, the information, at best, of historical interest only "post mortem" analysis of the past can be provedena.Posao requires timely information at regular intervals to allow the management plan and take corrective measures. For example, if a business has a budget in the current year sales should be $ 12,00,000 then it requires the information to the sales in the first month of this year amounted to $ 10,00,000 or less or more?

Traditionally, financial accounting should provide information in a shorter interval of less than one year. With the advent of computer accounting software now like HiTech Financial Accounting displays monthly profit and loss account and balance sheet in order to overcome this limitation. Financial accounting is influenced by personal judgments'Convention objectivity 'is respected in accounting but to record certain events estimates must be as required by personal judgments. It is very difficult to expect accuracy in future estimates and objectivity suffers. For example, in order to determine amount of depreciation charged each year for the use of an asset should be an estimate, and revenue accounting is not published authoritative but 'approximation'.

financial accounting ignores important non-monetary information

financial accounting does not consider those transactions of non-monetary in nature. For example, the extent of competition faced by the business, technical innovation owned enterprises, loyalty and efficiency of employees, changes in the value of money, etc., are important matters in which the company's business is highly interested but accounting is not tailored to take note of such things . Thus, any user of financial information, of course, without the vital information that is non-monetary character. In modern times a good accounting software with MIS and CRM can be useful to overcome this limitation partially.

financial accounting does not give a detailed analysis of the

information that financial accounting is in fact aggregates of financial transactions during the year. Of course, it allows the study of the overall results of operations data for the related costs, revenue and profit of each product but financial accounting does not provide such detailed information product-wise. For example, if the business has earned a total income of say, $ 5,00,000 during the accounting year and sells three products namely gasoline. diesel and mobile oil and wants to know for each time a product Financial accounting is not likely to help him if he uses a computerized accounting system capable of handling such complex queries. Many reports of computer software as an accounting HiTech Financial Accounting which are explained by charts and custom reports as needed business to overcome this limitation.

Financial Accounting does not disclose the present value of the business

in financial accounting as a business location and the date is displayed statement known as the 'balance'. The balance sheet assets are shown under "Continuing Entity Concept. Therefore, it is assumed that the job has a relatively longer life and will continue to exist indefinitely, so the value of" going concern value. "'Realized value' of each asset, if sold to date can not be known by studying the balance sheet.

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