Purpose of Accounting

Accounting is a crucial discipline for keeping track of quantifiable factors for a business or individual. Accountants are primarily employed to track the flow of money through an organization. In some cases, they are charged with ensuring legal compliance. In others, they are more specialized in optimizing that cash flow. Accountants also organize and aggregate financial information and produce reports for people less experienced in the discipline.

Significance

Without good accounting practices, it can be very easy to lose track of the finances of even a moderately active small business. Keeping an accurate balance sheet is a fundamental part of running even the most basic of small businesses. Even with automated record keeping software that reduces the work load involved in accounting, it is important for any managers or business owners to be at least versed in the basic principles of the area of study.

Function

Double-entry bookkeeping is the foundation of accounting. It means that for every debit to one account, a credit must be applied the corresponding one from which the money came. The debits and credits must then add up to make zero, or there has been some error in the accounting somewhere. Accountants and others looking over someone's records strive to hunt down and eliminate discrepancies for the sake of accuracy.

Features

Certified public accountants do the bulk of accounting work in the world of business. These accountants need to have completed an undergraduate education with a minimum of 36 credit hours in accounting, and must pass a very challenging and competitive professional exam. Accountants work to make sure that the books of their clients conform to the Generally Accepted Accounting Principles (GAAP).

Considerations

Accountants are employed to help a business reach its two chief goals: to earn and increase profits, and as a subset of that, to service all of its debts and cover all relevant costs. In many cases, accountants will be asked to make decisions that will have significant effects on the operations of the overall company. For example, the may be requested by management to find a way to pay for the construction of a new building without running into trouble paying employees and servicing corporate debt.

Benefits

Accurate accounting serves the long-term interests of the business far better than poor or inaccurate accounting. An inaccurate balance sheet is not only a legal liability, but a significant one for the business as a whole. If the books aren't balanced, it can be quite difficult to make accurate decisions regarding the funds of the business. Truth in accounting is one of the fundamental professional principles upon which the integrity of the profession rests. Although it may be possible to protect funds from creditors, fool investors or use other such deceptive accounting practices to get a temporary advantage, in the long-term, such black methods are sure to result in a high degree of inefficiency and an accumulation of risk to the business that could eventually prove fatal for the venture.

Resources

• Quick MBA website for more about financial accounting
• Careers in accounting overview
• RilelyGuide for more about finance and accounting