There Is More To Accounting Than Numbers

People tend to” judge the book by the cover” when it comes to understanding what accountants are and their job responsibilities. For most people they assume that accounting is based on numbers, and to their knowledge accountant’s only prepare taxes. But what people don’t realize is all the concepts and formats an accountant must comprehend.

A lot of people who have difficulties with mathematics tend to be scared of accounting, because they believe that accounting only obtains numbers and calculations. For many accountants numbers and mathematics calculations come easily; however, performing mathematical calculation is just part of an accountant’s job. With all the high tech computer equipment and software available, most accounting firms use the software to all their financial calculations.

Tax accounting is the most recognizable type of account but does not mean it is the only one. There are many different types of accounting such as: managerial, bookkeeping, accountant, Certified Public Accountant, and in large companies they break down their accountants into more direct sections (Accounts Receivable/Payable, Payroll, etc).

Not only do accountants have to understand the laws that they must obey and make ethical decision making, but they also have to understand the basic accounting concepts before they can perform any accounting task. One of the important basic concepts is understand what assets, liabilities, and equity means in the accounting world and how they work with each other. Assets are anything that the company owns, liabilities is what the company owes, and equity is the company net worth.

Another concept that is important to know is which of these accounts hold a debit balance (right side) and which hold a credit balance (left side). An asset normally holds a debit balance while liability and equity normally hold a balance credit. This can get tricky because depends on the accounts balance determines if one would increase/decrease the account with a debit/credit balance. To simply remember how these accounts works with each other, always remember that assets equals liability plus equity and both sides of the equations must equal value of change another.

Accountants also have to be able to prepare financial statements for the business. Financial statements are formal records of the businesses financial activity during a period of time. There are four financial statements that are required by the Generally Accepted Accounting Principles (GAAP) which consist of: statement of financial position (balance sheet), income statement, retained earnings, and statement of cash flows. Each of these statement measures different activities for a company. The statement of financial position demonstrates where the company stands financially during the fiscal year or during certain points of the year. To summarize the company’s revenue and expenses transactions for a period of time an accountant would prepare an income statement for the company. When a company wants to illustrate a change in the company retained earnings of a period of time an accountant would then perform a statement retained earrings. Demonstrating how the company’s cash has changed during a designated period of time is referred to statement of cash flows. Not only does an accountant have to be knowledgeable on what financial statement to use and what information/numbers is obtained in those statements, they also have to know how to correctly format the statements.

Once an accountant can comprehend the basic accounting principles then they are capable to work with numbers to perform these tasks. Mainly all the number are given or shown by transactions, only little calculations maybe needed. An accountant job is to organize financial information/numbers and demonstrate the company financial activities.

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