Every Accounting Major Should Know How to Define Accounting!
February 24, 2018
I thought for few seconds. "Well, accounting is...uhm..."
It's really a shame for an accounting major if he could not define the profession - at least through his own words. Man, I was already on my third year that time, and I couldn't simply define it!
As what Albert Einstein said, "If you can't explain it, simply you don't understand it well."
Thanks to that person who asked me, he made me realize of one thing.
Every Accounting Major Should Know How to Define Accounting!
So now, our topic shall be about accounting: it's definition, the process, and your career path as an accountant.
In my own definition (primarily influenced by the accounting books I read way back in ollege), accounting is a systematic process of providing financial information to users. They include the management, existing and prospective investors, government, etc. The financial information provided by accounting is helpful in making reasoned choices among alternative courses of actions.
Simply stated, there are three stuff you need to remember for you to define it:
1. Remember that it is a systematic process.
2. Remember its purpose
3. Remember the users
Accounting as a process
Since it is a process, it goes through different phases namely: a) recording; b) classifying; and c) summarizing.
Let's start first with the recording phase or in layman's term, bookkeeping, In this phase, accountant or his assistant, collects source documents (like receipts, schedules and other supports) which shall be used in making journal entries.
The next should be the classifying phase. Accountants are bound to classify interconnected transactions and put them in their corresponding classes to arrive at a single monetary figure. This phase is done through the use of ledgers and/or T-accounts.
The last phase of accounting is the communication phase. This serves the purpose of providing financial information useful in decision making. In this phase, accountants prepare financial statements not limited to Balance Sheet, Income Statement Cash Flows and Capital Statement. It is called the communication phase because it "tells" the users the result of the recording and classifying phases.
Financial statements contains the useful information in decision making. A user won't take time looking at your journal entries. He wants a summary of company's performance and position. Financial Statement is said to be the output of accounting. If architects have bluleprints, accountants have FS.
What is the Difference of Bookkeeping and Accounting?
Now that you understand the process, you won't confuse bookkeeping and accounting anymore!
Just because one knows the rules of debits and credits, it does not mean he's already doing accounting. Accounting is a broad profession and for you to be able to be called as an accountant, you should be doing it with competence from the recording to the communication phase. You are bound to prepare financial statements aligned with the International Financial Reporting Standards (IFRS) or a more applicable accounting framework.
I wrote a separate article about the different career paths of an accountant for a detailed and an in-depth explanation of what the accounting profession could offer to students, to the people and to the businesses.
3 comments
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