How To Become A CPA (3)

AccountingAccounting is an information system, the process of identifying and measures the quantitative financial activities and communicates these financial reports to the decision makers. The concept holds that for any accounting period, the earned revenue and all the incurred cost that generated the revenue have to be match and reported for the period. Although the result of a business unit cannot be with precision until its final liquidation, the business is divided into accounting periods (usually one year) and changes in position are measured over these periods. Usually there is more than one way in which an item may be treated in the accounts, without violating accounting principles.

B. Assumptions of Accounting : The accountant has to make certain assumptions in order to limit the possible range of interpretations. Materiality : The essence of materiality is to assess the significance of an item in relation to the whole and according such item strict accounting treatment based on its size or monetary significance. However it does require that where the accounting treatment is hanged, say a change in accounting policy on depreciation from straight line to reducing balance method of depreciation. The differences between financial and management accounting are not merely academic.

Consistency : The concept of consistency holds that when a company selects a method it should continue ( unless condition warrant a change ) to use that method in sebsequent periods so that a comparison of accounting figures over time may be meaningful. The concept ensures that the accounting treatment of similar items is consistent, taking accounting period with another. Management accounting is not legally required; it is used solely at the discretion of an organization’s managers.

The accounting function does not operate in a bubble, it’s a part of a company’s broader business systems & though it deals with the financial operations of the company it takes from & gives to, valuable information & advice to its other departments. What this means is that every transaction would have be entered as a debit in one account & a credit in the corresponding accounting. For example if Inventory is to be recorded; its recording would involve a debit entry in the Inventory account whereas a credit entry in the Cash or Inventory Payables accounting !

In most companies the head of the accounting department is the finance director who sits on the company’s board of directors & is responsible for its routine accounting matters & also for its broad financial policy. Financial accounting states the financial position of entities and provides information about their revenue generation, profitability and other information to stakeholders.