Accounting - How It Is
Structured
Accounting
has been defined by the profession as “The art of
recording, classifying, and summarising, in terms of money,
transactions and
events which are, essentially, financial in nature, and interpreting
the
results accordingly.”
Accounting
relates to the dissemination and measurement of
financial information by accountancy professionals to establish the
level of
performance of an organisation. The culmination of such analysis is the
preparation and production of a set of financial accounts representing
company
performance in the previous twelve months.
The
accounting function is normally divided into three
separate branches:
The
Financial Accountant prepares and analyses the financial
data necessary for the decision makers within a business organisation. In the case of public
companies, such
information, in the form of financial accounts, is made available for
public
scrutiny.
Management
accounting, by contrast, is associated with the
flow of company information, and is normally confidential in nature and
available only to a select group of individuals, such as board members
and
accounting management.
Further,
companies pay corporation tax and individual
employees pay income tax and national insurance, and it is necessary to
produce
this type of financial information for the relevant tax authorities.
Accountants
are accounting professionals, representative of
these three branches of accountancy. There are a number of professional
bodies
who represent accountants, the most important being Chartered
accountants
(ACA), Certified accountants (ACCA), Management accountants (ACMA) and,
in the
US,
Certified Public accountants (CPA).
A
completely separate branch of accounting is that of
Auditing. An independent auditor who examines the financial statements,
in the
form of financial accounts, and accounting records of the organisation
with
whom he is conducting the audit, is called an external auditor. The
purpose of
such an audit is to provide an independent record of the fairness and
accuracy
of the accounting statements in accordance with laid down procedures
such as,
in the
US,
the Generally Accepted Accounting Principles, also known as GAAP
accounting,
and elsewhere, in accordance with International Financial Reporting
Standards
(IFRS).
Some
companies believe in auditing themselves, apart of an
external audit, in order to provide ongoing financial information
specifically
for use by management. Such internal auditors are normally employed by
the
company itself.
The
financial reports, especially the annual accounts, are
not only used for the benefit of company management, but are also
invaluable to
external groups, such as shareholders, creditors and the banks. The
preparation
of the various accounting reports, necessary for any business, relies
implicitly on the day-to-day production and dissemination of financial
information generated by way of double-entry bookkeeping.
Accounting
– How To Succeed
Peter
Radford writes Articles with Websites on a
wide range of subjects. Accounting
Articles cover Background, Historical,
Double Entry, Accounting Software and Applications.
His Website
contains over 70 Accounting Articles
.
View
his Website
at:
accounting-how-to-succeed.com
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