What is accounting?

Accounting is the process of assessing, recording and communicating all information regarding financial transactions for an organization or an individual. Accountants are responsible for ensuring their clients are fully aware of their financial performance and legal obligations, including profits, losses, expenses incurred, assets and liabilities. Accountants will often help a client undergo financial planning for the future and prepare budgets based on their current financial standing.

What are the 4 types of accounting?

• The four types of accounting include corporate accounting, public accounting, government accounting and forensic accounting.

Corporate accounting is the use, handling and filing of a company’s financial data for general reporting and tax compliance purposes. Corporate accountants must be well-versed in many accounting methodologies and adhere to several rules, regulations and standards, such as the Generally Accepted Accounting Principles (GAAP) and Internal Revenue Code (IRC), as well as industry specific regulations. Public accounting is when accountants work with external clients, including companies and individuals, to ensure their financial statements, records and filings are accurate. These accountants must be aware of several industry-specific practices, adhere to GAAP and possess strong problem-solving skills.

Government accounting involves working within local, state or federal government entities to maintain financial records and ensure proper use of government resources. Government accountants use different frameworks than corporate or public accountants and are often more strictly vetted due to the secure nature of the information involved. Finally, forensic accounting is a branch dedicated to collecting, recovering and reconstructing financial data that is cloaked or difficult to obtain. Forensic accountants are often required to be more resourceful, creative, and have a knack for problem solving as they are often involved with investigating fraud, laundering, and other financial crimes.

What are the basics of accounting?

• Some basic components of accounting include record keeping, transactions and financial statements.

In order for proper accounting to take place, a company must ensure it has a solid approach to record-keeping, including basic accounts for storing information and qualified bookkeepers who can provide accurate financial readouts. Some terminology that should be understood in record-keeping includes assets, liabilities, equity, expenses and revenue. 

When working with a company, accountants are responsible for compiling transactions across the business, and thus, must have a solid understanding of transactions such as sales, purchases, receipts and payroll. In addition to recording transactions, an accountant must consolidate the information stored within an account and sort it into three regulated documents, collectively known as financial statements. These statements include the income statement, which contains all information about a company’s revenue; the balance sheet, which contains details about company assets, liabilities and equity; and the statement of cash flows, which outlines all uses and sources of cash during the reporting period.

What are the 10 basic accounting principles?

• The 10 basic accounting principles include the principle of regularity, principle of consistency, principle of sincerity and more.

The Financial Accounting Standards Board (FASP) has developed what is known as the Generally Accepted Accounting Principles (GAAP) to compile a common set of standards and procedures that accountants for public companies within the United States must adhere to when compiling financial statements. GAAP is designed to improve the overall clarity, consistency and comparability of financial information. 

The complete ten principles of GAAP are as follows:

• The principle of regularity states that the accountant must adhere to GAAP rules and regulations as a standard.
• The principle of consistency ensures the accountant applies the same standards throughout the reporting process.
• The principle of sincerity ensures the accountant provides an accurate and impartial reading of the company’s financial situation to the best of their ability.
• The principle of permanence of methods ensures that the procedures used throughout reporting remain consistent, so company financial information can be comparable.
• The principle of non-compensation mandates that both negatives and positives be reported with full transparency and without debt compensation.
• The principle of prudence refers to the emphasis of fact-based financial data representation above speculation.
• The principle of continuity means that when valuing assets, it should be assumed that a business will continue operating.
• The principle of periodicity ensures that entries are distributed across periods of time appropriately.
• The principle of materiality means accountants must fully disclose all financial and accounting information available to them within reports.
• Finally, the principle of utmost good faith dictates that all parties remain honest throughout all transactions.