Accounting is the management of a company’s finances. Finances are everything that a company buys, sells or invests in.
- Accounting is the recording all transactions of a company. These financial transactions related to the company’s finances like assets.
- Transactions are agreements between a buyer and seller. A transaction is for a product or service in exchange for money.
- Professional accountants follow the GAAP standard.
- Accountants should also be familiar with the tax filing process.
What is accounting?
Accounting is the process of recording financial transactions of a company. Accounting includes financial activities of a business. From adding transaction descriptions to categorising them to generating financial statements.
Accounting is usually taken care of by an accountant or bookkeeper. Both manage a company’s finances. But there are some differences between accountants and bookkeepers.
Professional accountants follow the Generally Accepted Accounting Principles (GAAP) accounting standards. Accountants are familiar with terms such as “Chart Of Accounts” and “Income Statement”.
Accountants are familiar with the tax filing process of their jurisdiction. Accountants are also familiar with requirements of annual reports and corporate tax filings. For example, Singaporean accountants are familiar with how to prepare accounting statements. In Singapore, ACRA outlines these standards.
A general step by step overview of accounting
- An accountant selects an accounting software and sets up an account for a company.
- The accountant creates accounts in the chart of accounts. (e.g. “Common Stock”, “Bank Checking Account”)
- The accountant integrates the accounting software with all the company’s bank accounts.
- All transactions get automatically added to the accounting software.
- The accountant reviews all transactions and categorises them.
- The accountant will fix errors. He will alter transactions. He may use journal entries or set an exchange rate if he’s dealing with foreign currencies.
- The accountant generates financial statements. (e.g. income statement, cash flow statement)