Accounting measure business transactions and communication through financial statements. Accounting measures business activities by recording data. Then processed in a way as to become useful information. The information is communicated, through reports, to those who can use it in making decisions. To illustrate the nature and variety of information that accounting supplies, the duties performed by the accounting department of a corporation may be taken. During the course of an ordinary year such an accounting department will:
The record of business operations and activities which is kept by the accounting department is fundamental to all its other activities. It includes the details of every transaction to which the enterprise is a party: of sales, purchases, investments, dividends, transfers between departments, and the like. Various books, journals, and ledgers combine to make up this record of business operations. Of these, the basic one is the familiar general ledger which should be organized so that it contains the most significant information, properly classified. Taken all together, these ledgers, journals, files make up the permanent record from which all financial reports and statements must be prepared.
All revenue transactions are alike in this feature of exchanging the product or service of the enterprise for some other valuable asset, normally cash or a promise of cash in the future.
There are few services performed by accounting that can be of more constructive benefit to a company than adequate cost accounting. Cost accounting has become a specialized field, and many companies have established special departments to handle the problems involved.
A good cost system provides information on the costs of product at each stage of manufacture, by departmental subdivisions, or on whatever other basis is most useful One important use of cost data is in price determination. Determining acquisition cost:
Proper cost accounting is also extremely helpful in the preparation of budgets, in estimating the feasibility of expansion, and in providing detailed analyses of various kinds.
One of the most important problems in dealing with inventories has to do with determining the price at the inventory should be carried in the accounts and stated in the accounting reports. All expenses are said to be attached to the inventory and considered to be a part of the total inventory valuation. During any given fiscal period it is very likely that merchandise will be purchased at several different prices. The question arise as to which of the various cost prices should be used. Some of the methods used in arriving at cost figures for inventories are: Specific identification; First-in, first-out (FIFO); Last-in, first-out (LIFO); average cost; base stock; retail method. Each of these has a somewhat different effect on net income when prices are increasing or decreasing.
In double-entry accounting, net income is customarily computed at the time of closing the accounts.
The basic financial statements are the statements of income, or statement of profit and loss, and the balance sheet. Increasing of complexities in business organization and operation require additional information, and other specialized statements have been developed to present this additional information in convenient, useful fashion. Statements of retained earnings (or surplus), statements of partners’ capital, statements of working capital, condensed and consolidated reports, and supplementary schedules of various kinds may be helpful in almost any business. The preparation of all the common forms of statements together with specialized statements for specific needs is within thee scope of every accountant’s duties. To meet his responsibilities adequately, the accountant must design his permanent record, the accounting system; in such a way that both the common forms of financial statements and such unusual reports as may be required can be prepared readily and promptly.
A company always faced with the necessity of filing tax declarations with several taxing authorities. There are many kind of tax: value added tax, corporate income tax, special consumption tax, personal income tax and other contributions monthly as social insurance, health insurance. In some cases the return is simple, and no special problem is involved in its preparation; data taken directly from the accounts and multiplied by a simple rate may suffice. In other instances considerable study and the use of reference books of various kinds may be necessary to complete the return properly.
Along with its informational service, accounting also helps to safeguard the assets of a company by assisting in developing and maintaining internal control.