A strong company can attribute some of its success to its accounting. Without accounting, it would be hard to keep track of your business’s finances and profitability.
What is accounting?
As an individual, you may only ever use an accountant in the form of an online form for submitting your taxes.
Tax collectors, regulators, and other oversight agencies will want to see proper accounting. If your business ever seeks investors or other shareholders, these agencies will review your accounting paperwork.
What do accountants do?
The American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”
Accountants also provide a company’s internal management team with the information it needs to keep the business financially healthy. Some of the information originates from the recorded transactions and some consist of estimates and projections based on various assumptions.
What are the different types of accounting?
There are tax accountants, financial accountants, public accountants, government accountants and more. Forensic accountants are employed by regulators and law enforcement to help track illegal activity. Diving even further, crypto accountants deal with cryptocurrency assets.
An accountant usually works for one of the following: a person, a business or the government. However, accounting firms such as Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers are renowned for tracking and managing public and private financial data.
Accounting ratios
Accounting ratios help to uncover difficult-to-find conditions and trends by inspecting the individual components that make up the ratio. Formulas like this help accountants determine a company’s status and projections. Accounting ratios are divided into five main categories:
Liquidity ratios measure a company’s liquid assets versus its liabilities.
Profitability ratios measure an organization’s ability to turn a profit after paying expenses.
Leverage ratios measure total debt versus total assets and gauge equity.
Market-value ratios measure a company’s economic status compared with others in the industry.
Basic accounting tasks
Here are some examples of job duties accountants perform:
Record transactions. Depending on the volume of transactions, an accountant may record each transaction (e.g., billing customers, receiving cash from customers, paying vendors) daily or weekly.
Document and file receipts. Accountants may copy all invoices sent all cash receipts (cash, check and credit card deposits) and all cash payments (cash, check and credit card statements). They also may start a filing system that makes sense, is easy to keep track of and is simple to maintain.
Pay vendors and sign checks. Accountants may track accounts payable and have funds scheduled to pay suppliers on time to avoid late fees.
Balance business checkbooks. Accountants may do this monthly to ensure that your cash business transaction entries are accurate and that you are working with the correct cash position.
Process or review payroll and approve tax payments. You need to meet payroll tax requirements based on federal, state and local laws at different times, so accountants can make sure you withhold.