INTRODUCTION OF ACCOUNTING

INTRODUCTION

The purpose of accounting is to provide a means of recording, reporting, summarizing, and interpreting economic data. In order to do this, an accounting system must be designed. A system design serves the needs of users of accounting information. Once a system has been designed, reports can be issued and decisions based upon these reports are made for various departments. Since accounting is used by everyone in one form or another, a good understanding of accounting principles is beneficial to all.

ACCOUNTING FIELDS

The accounting profession is generally divided into two categories: 1) private accounting and 2) public accounting. Private accountants are employed by a business, while public accountants practice as individuals or as members of an accounting firm. Public accountants are subject to strict government regulations and requirements which are determined by each individual state where a license is granted. Private accountants on the other hand require no licenses. They perform tasks which have been determined by their employer. Accounting fields exist that specialize in very specific areas of a business. Examples are auditing, budgetary, tax, social, cost, managerial, financial and international.

BASIC ACCOUNTING PRINCIPLES & CONCEPTS

Bookkeeping is concerned with the recording of business data, while accounting is concerned with the design, interpretation of data, and the preparation of financial reports. Three forms of business entities exist: 1) sole proprietorship, 2) partnership, and 3) corporations. Corporations have the unique status of being a separate legal entity in which ownership is divided into shares of stock. A shareholder's liability is limited to his/her contribution to capital. Whenever a business transaction is recorded, it must be recorded to accounting records at cost. All business transactions must be recorded. All properties owned by businesses are assets. All debts are liabilities. The rights of owners is equity.

THE ACCOUNTING EQUATION & TRANSACTIONS

Assets, liabilities and owner's equity are the basic elements of the accounting equation. The excess of assets over liabilities is owner's equity. Thus, assets are equal to liabilities plus owner's equity at all times. Any business transaction has to affect at least one of these elements.

ACCOUNTING STATEMENTS

There are two basic accounting statements used by most businesses. The balance sheet presents the assets, liabilities and owner's equity. Each account balance in the balance sheet is reported as of the last day of the financial period. The income statement determines whether a net profit or loss was realized by matching total revenue and expenses for a specific time period. A third statement is used by some businesses. It is the statement of owner's equity which presents the changes which have taken place in owner's equity over the period.

CORPORATE ACCOUNTING STATEMENTS

The financial statements of corporations are different from those of other forms of business in several aspects. Instead of having an owner's equity section in the balance sheet statement, a corporation has a stockholders' equity. Shareholders' equity is composed of capital stock and retained earnings. Capital stock represents the initial investment of the shareholders. Retained earnings represents accumulated profits. The owner's equity statement is usually called retained earnings statement. The retained earnings statement will at times have deductions called dividends which represent payments of earnings to shareholders. Whenever shareholders buy shares of stock from the corporation, assets and stockholders' equity increase. The reverse occurs when dividends are distributed.

WHY STUDY ACCOUNTING?

Here are four main reasons why individuals choose to study accounting and earn a degree in accounting and finance.

1. Stimulating

The finance and investment world is exciting, attracting many of the top graduates.
Prestigious companies such asMerrillLynch,MorganStanley, andJPMorgan offer exciting and glamorous careers. With all the recent scandals, there has been more demand than ever for accountants.


2. Rewarding

The salaries associated with careers in accounting generally have high salaries associated with them.
The National Institute study recently identified accounting as one of the most lucrative degree courses based on lifetime earnings. The salary ranges depending on position but six figure salaries are the norm.




3. Variety

The number of career opportunities available to you with an accounting degree is mind boggling.
Many underestimate the choices. There’s a career to suit every interest including management consultant, auditor, corporate accounting, tax planning, IT consulting, human resources, and insolvency. Of course, that’s just a handful of career choices.


4. Leadership


After you have earned your degree, and gained ones professional qualifications, many accountants begin to climb the corporate ladder into senior management and CEOpositions.
It’s an exciting career choice. You are limited only by your own desire to rise.

ACCOUNTING SKILLS TO BE A GOOD PROFESSIONAL

1.  The technical path

The role and career of the accountant is constantly evolving and accountants now have two distinct career paths to follow - technical or commercial. For those who chose the technical path, employers require finance professionals who are up-to-date with changes in accounting procedures and legislative developments.

Undertaking specialist courses on subjects such as financial reporting, regulation, IT, tax and IFRS will help. Chris McCarthy, director at Hays Senior Finance, says: 'Professionals wanting to specialise in technical accountancy may also want to focus on risk and compliance as there is a real need for individuals who are able to predict and manage risk within a business'.

2.  Industry awareness

There will continue to be a requirement for professionals who can anticipate future business developments and financial trends across the globe. Careers in accounting are changing and as a result an increase in business transformation outsourcing and shared services has been seen, areas which are set to become even more prominent in this economic cycle.

Another trend likely to increase is in mergers and acquisitions once the markets recover fully.

3. The all-round package

Within financial services, accountants with an eye-for-detail and excellent communications skills are sought after, while more banking and investment management businesses are now looking for strong financial products knowledge.

Most financial services organisations are focusing on growth, which is driving new levels of activity and pushing up revenues. As internal teams demand better service from accounting departments, employers will ensure they stay one-step-ahead of their competition by hiring accountancy staff with a genuine knowledge and passion for the building blocks of the organisation. 'No longer can people 'make-do' with just being good with the numbers - accountants now need to have the all-round package', says Richie Holliday, COO, Morgan McKinley North Asia.

4. Audit and compliance skills 

Accountants specialising in audit and compliance will see increased opportunities as companies take steps to ensure they remain in line with enhanced regulatory requirements. Phil Sheridan, managing director for Robert Half UK, confirms: 'In a recent global survey, we found 25% of UK finance leaders reported difficulty in filling audit positions, while 14% were having trouble securing compliance skills'. 

THE EVOLUTION OF ACCOUNTING

Accounting records dating back more than 7,000 years have been found in Mesopotamia, and documents from ancient Mesopotamia show lists of expenditures, and goods received and traded. The development of accounting, along with that of money and numbers, may be related to the taxation and trading activities of temples:

"another part of the explanation as to why accounting employs the numerical metaphor is that money, numbers and accounting are interrelated and, perhaps, inseparable in their origins: all emerged in the context of controlling goods, stocks and transactions in the temple economy of Mesopotamia.

The early development of accounting was closely related to developments in writing, counting, and money. In particular, there is evidence that a key step in the development of counting—the transition from concrete to abstract counting—was related to the early development of accounting and money and took place in Mesopotamia.

Other early accounting records were also found in the ruins of ancient Babylon, Assyria and Sumeria, which date back more than 7,000 years. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Because there was a natural season to farming and herding, it was easy to count and determine if a surplus had been gained after the crops had been harvested or the young animals weaned.

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