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What is Accounting?

April 1, 2021 | Staff Writers

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According to Investopedia, accounting is the process of recording financial transactions about a business. This process would include summarizing, analyzing, and reporting the transactions to proper agencies such as oversight agencies, tax collectors, and regulators. 

However, accounting isn’t just for businesses. As individuals, we must also do all of the above every April; otherwise, the taxman will come after us. Accounting, whether for your business or yourself, is tracking money in vs. money out and making sure that it all adds up in the end. You need to know where your money comes from, where it goes, and be able to prove both of these trails using financial statements.

What the Field of Accounting Covers

The term accounting is a broad term, and the field breaks down into different types of accounting. Some accountants can cover a couple of the more basic types; however, many will choose a specialization and stick with that.

Listed below are the most common types of accounting.

Financial Accounting

The main focus for a financial accountant is working with management to develop strategies and an accounting procedure to make the company more profitable. From there, the financial accountant will compile a financial report for external use. They also track financial activity, ensuring internal procedures are followed and that all documents and financial statements are completed correctly.

Managerial Accounting

Managerial accountants focus on documenting, monitoring, and assisting in the financial planning of an organization. Most often managerial accountants work with confidential information and deal with internal stakeholders, careful whom they speak with and what they reveal. They work with managers to come up with short- and long-term goals for the company’s budget.

Cost Accounting

Cost accountants are responsible for researching manufacturing costs and work closely with managerial accountants when coming up with their budgets. They are in charge of all fixed and variable expenses to compare if output aligns with costs to produce. They will also work with managers to look at future financial forecasts and the progress of production.

Auditing Accounting

There are two types of auditing accounting; internal and external, and both are classified as public accounting. External auditing is when a third party looks at your financial statements and provides financial feedback. The third-party company would be a reputable company with accounting department qualifications to do such audits and knows best practices. 

Internal audits are done by someone within your own company, though it may be someone from a different office or location. They are looking to determine the effectiveness of the internal accounting processes. Their feedback can be useful in helping a company become more efficient and profitable.

Tax Accounting

Tax accountants are who you want when April rolls around. This type of accounting helps businesses and individuals stay in compliance with annual tax codes and regulations. They also help with letting you know what items and services you can write off, plan for future tax seasons, understand certain tax decisions, and why to avoid certain tax burdens. Large corporations usually will hire a tax accountant due to the complexities of having to navigate a large number of financial accounting records.

Accounting Information Systems

Those working in accounting information systems or AIS manage the improvement of accounting procedures. This role schedules the best time to install updates to software and monitors the progress of existing systems. AIS accountants tend to work closely with the IT department to ensure that the software and programs required work with the overarching systems that the company runs and that updating won’t affect anything.

Fiduciary Accounting

Fiduciary accounting is basically like having a private accountant who serves you in matters about real estate, trust funds, investments, and others. An individual has a fiduciary accountant on retainer and updates them at least once a year on financial information on things such as a summary of all accounts, assets they have at their disposal, schedules of receipts, losses, and gains.

Forensic Accounting

Forensic accounting requires a bit of investigating and reconfiguring a company’s financial information if there is some missing information or information that is not available. The focus of forensic accounting is to obtain all available information and develop an accurate record of debit, credit, and cash transactions. In most cases, forensic accountants work with law enforcement on cases that involve fraud, claims, and disputes.

Public Accounting

There are many differences when it comes to public versus private accounting. Public accounting is the most popular and widely available accounting service. Think H&R Block or your local hometown accountant. These accountants can provide clients, quite often individuals, with advice based on their needs. Some areas they can help in are assisting with tax returns, consulting on procedures tailored to the installation of technology or computer programs, auditing, and providing legal advice.

Government Accounting

Government accountants require a different set of standards than regular accountants, as they need to comply with a special set of government standards. Government accountants are in charge of managing the financial planning and allocation of the government’s resources at all branch levels. While working closely with the governing board, they are responsible for ensuring that funds are distributed appropriately. 

Importance of Accounting for a Business

In most cases, without accounting, you wouldn’t be able to run your business. If you could continue running your business, it probably wouldn’t look the same as it does with accounting. There’s a good chance you’re losing money somewhere or you’d forget to pay a bill or two, and you wouldn’t have everything you’d need when it came time for tax season.

But this isn’t all. There are plenty of other reasons why accounting is important for your business, some of which you may not think of.

Accounting Helps You Plan for Growth

Knowing what your business is worth, how much is coming in vs. how much is going out is invaluable. You will see this information on your financial statements, which will let you know if you’re ready to grow your business. If this is something that you are interested in doing, it will be a deciding factor for banks when you ask for a business loan.

You Need Accounting if You Want Investors or to Sell Your Business

Whether it’s something you’re thinking about now or for one day down the road, having a good accounting system in place will help land investors and a buyer for your business for when you’re ready. The longer the paper trail, the better and more appetizing it will be. Investors and potential buyers like to see that the business is profitable and on track for growth.

Accounting Helps You Get Paid

When you provide goods or services to a customer, and that customer owes you money, it is considered an account receivable. Your accounting system tracks the accounts that have paid and which still owe you money. This type of accounting isn’t necessarily an issue for some stores that have to pay upon receipt, such as at a grocery store. But there are still some companies that have goods and services that invoice and payment are due in a certain amount of time.

This system will also help you track how effectively you are collecting payments, how late certain people or companies are at paying, and more. Analyzing this information can help you make your company more efficient and profitable, perhaps the information will show you that you need to change suppliers.

Accounting Keeps You Out of Jail (Well, it at least Saves You from Paying Fines)

Taxes can be confusing enough when having to do them as an individual, so doing them for a business can be even more so. There are a lot of tax obligations that go along with running a business, and the implications of missing something can be high. Even if you innocently forgot to put something in, the government automatically thinks you misreported. Nobody needs that headache, so let a professional sort it out.

Accounting Helps You Save On Your Taxes as Well (No Need to Pay More Than We Already Do)

Not only will an accountant help to ensure you are paying all of the correct things, but they know all of the tricks of the trade to save you money as well. Speak with your accountant before making any big purchases for your business. They may provide you with advice on if you can write it off or if it will be a tax burden. There are several things you wouldn’t even think of that can be written off that your accountant will know about. They will help you save money so that the government doesn’t get a dollar more than they should.

Types of Accounting Jobs

There are several different accounting jobs, from a booking clerk to a cost estimator. Since we can’t cover them all, we thought we’d take a look at the highest paying jobs as accountants. Keep in mind, these are not entry level positions, and in most cases, you will need a master’s of accounting, but it’s nice to challenge yourself and reach higher for MBA accounting programs or other specializations.

1. Vice President, Finance

The vice president of finance is for fulfilling the requests of upper management when it comes to being responsible for company financial planning, debt financing, and budget management and ensuring that they are a communication liaison between the C-level of management and the lower-level employees. 

2. Chief Financial Officer (CFO)

This is one of the highest levels of authority and responsibility that accountants can aspire to reach. To reach the level of chief executive officer, an accountant must have an excellent record with the highest level of expertise. The CFO’s job becomes much more complex the larger the company is, as the buck stops with them.

3. International Tax Manager

It seems that the world has become a smaller place in the past few decades, and it appears as though in the business world, there are no borders. International business is one of the fastest-growing specializations, and international tax managers are becoming so valuable. Not only do they need to know the rules and regulations on this side of the globe, but they also need to know all of the rules and regulations of the countries they are dealing with, including importing and exporting, mergers, business relations, etc.

4. Finance Director

The finance director is an accountant who is climbing their way up the ladder. Just below the vice president, finance, the finance director also has many years of experience and often will be given some flexibility with the way they operate, especially if it yields results. They deal more with the supervisors and floor workers.

5. Corporate Controller

The corporate controller is the person who ensures that each of the necessary tasks is getting done. They get on upper management if they have to and remind them about billing, tax preparation, budgeting, and more. They keep everyone in line, and it takes a strong person to be a corporate controller as they need to speak up to those above them on the pecking order.

6. Cost Accountant Manager

The cost accountant manager is a specialized position. It focuses on analyzing the cost of producing a product and the price the product needs to sell for so the company makes a profit. They need strong analytical skills as well as an understanding of economic forces that determine cost and value.

7. Senior Financial Analyst

Just about every industry has senior financial analysts, so if there is a particular industry you’re interested in, then you can combine two interests and get paid well for it. The primary duties include reviewing financial reports and recommending how the company can lower costs and improve financial situations. 

8. Compliance Officer

The compliance officer’s job is just like it sounds. Their job is to ensure the company is abiding by all relevant rules and regulations. Compliance officers must also ensure that companies are acting legally and ethically in all of their dealings.

9. Assistant Controller

Just like a corporate controller, an assistant controller has the same responsibilities at a lower level. They will help the corporate controller ensure that all of the billing, tax preparation, budgeting, and more gets done.

10. Accounting Software Developer

An accounting software developer needs to be knowledgeable in both accounting and IT on the software developer side. Over the past few years, accounting software has continued to advance and will continue to do so. Long gone are the paper ledger days. 

Skills and Training Required for Accounting Positions

When it comes to skills and training required for accounting positions, you need more than just the required degree from an accounting program. Starting, you will need a bachelor’s degree in accounting, and if you plan on climbing the corporate ladder, you will have to pass the CPA exam and upgrade to a master’s in accounting degree. 

When reviewing resumes, employers are looking at more than just your schooling, they want to know what hard skills and soft skills you have, as there are a few in particular that you will need to make a great accountant. Indeed.com wrote an article about skills to put on your accounting resume that is going to impress employers.

1. Accounting Standards

This basic set of generally accepted accounting principles such as a common set of procedures for filling out an income statement or financial report is required. This skill shows consistency in recording and reporting financial transactions in your company, and organizing and maintaining clear records for investors who wish to compare your statements to other companies.

2. Business Knowledge

Accountants are often required to meet and work with colleagues from other departments and companies. Having general business knowledge not only allows you to communicate more effectively during these meetings and projects, but it provides potential employers with the confidence that you know what you are doing in these environments. You will be able to assess, record, and report your company’s needs while also effectively communicating and negotiating with vendors to address pricing, procurement, and invoicing questions.

3. Familiarity with Regulatory Standards

Since you need to know the regulatory standards for businesses, it’s important to show that you already understand them. It’s imperative to ensure compliance with meeting reporting requirements and maintaining integrity within accounting.

4. Attention to Detail

Attention to detail could be the most important skill when it comes to accounting. An accountant must be able to review large amounts of data or information, with the ability to review and identify inconsistencies. It’s a task that is easy enough to drift off into a daydream and miss something, but that can’t be afforded. Attention to detail is critical to ensure consistency and accuracy in financial reporting, and it also minimizes errors, which could lead to problems with regulatory agencies, like audits and investigations.

5. Software Proficiency

Accounting requires you to be proficient in several different software types, such as word processors, spreadsheets, and accounting software. Some companies have customized software developed for their accounting needs, so you need to show that you can pick up learning new software as needed. You will also need to keep up to date with software systems such as Enterprise Resource Planning, which allows you to access budgeting, purchasing, invoicing, receivables, payroll, and personnel needs of a business all in one system.

6. Data Analytics Skills

Data analysis is a skill required for accounting. You will be required to take raw data and pull out the necessary information. This information allows accountants to create financial reports based on financial data such as revenue, budgets, and expenses. Data analysis means that accountants verify the accuracy of financial statements for honest reporting.

7. Effective Communication

Accounting isn’t just about numbers. You also have to effectively communicate with individuals and groups of people, both in writing and verbally. You may be responsible for presenting different types of reports, a budget report, a balance sheet, or another financial statement. Or you may need to tell someone higher up than you that they don’t have the budget to do what they want for a particular project. Being able to communicate effectively in both situations is vital, and employers need to know that you can handle different situations.

8. Critical Thinking Skills

Critical thinking is a soft skill that most companies want to see on a resume, no matter which position you are applying for. When it comes to accounting, critical thinking is important as it requires someone to look at a subject from all angles, conceptualizing, analyzing, and evaluating it before coming up with an informed decision. These skills are used in accounting for situations like evaluating financial reports, applying accounting practices to new information, and identifying solutions to financial problems such as non-payments, overages, or balancing a budget within ethical standards of practice.

9. Problem-Solving Skills

Just like it sounds, problem-solving is solving a particular problem. With accounting, it’s the ability to overcome problems that may arise due to mistakes or inaccuracies. This ties in with attention to detail. You need to first recognize that there is a problem. Once you’ve figured out there’s a problem, identify available solutions and evaluate all of your options. Select and implement the best solution to the problem, which may require authorization from management or another entity. Problem-solving is necessary for accounting to ensure consistency,  accuracy, and ethical practice. 

10. Being able to Prioritize

Prioritizing is important, especially as there are a lot of deadlines in accounting. You need to be able to organize your tasks in a way that you efficiently complete them based on the deadline. Accounting needs require maintaining financial accounts, reporting and payments, and taxes. The ability to prioritize these will help when it comes to deadlines and will help prevent penalties.

11. Orientation Standards

Accounting is a position that interacts with other people, whether that be with colleagues, customers, or clients. Having the ability to communicate in a service-oriented way allows an accountant to connect with people, helping provide them with financial advice and decisions in their best interest, which also speaks to the quality of service you provide and your integrity.

What is the Difference Between an Accountant and a Bookkeeper?

Sometimes people use the terms accounting and bookkeeping interchangeably, or they know there is a difference, but they just aren’t sure what that difference is. A bookkeeper can be a huge helper for an accountant, CPA candidates will have at least one on staff. Many individuals will hire a bookkeeper to do most of the work to keep the accountant fees down.

Bookkeepers don’t need to have any formal training, but they can do much of the data entry work and lower-level work for businesses and individuals. They can do everything from entering transactions into accounting software to training staff on how to enter expenses to help with audits. Often, they will prepare and do the first review of financial statements to look for any discrepancies.

In Summary

Accounting is a multi-faceted career field, something which may surprise many people. It’s far from what Hollywood may portray the profession may be like. It’s not a department full of nerds who are locked behind their dusty computers, forgotten by most of the world, only to be made fun of by their colleagues.

There are several different types of accounting, many of which most people didn’t even know about, and some of them sound quite fascinating. Who wouldn’t want to work with law enforcement to catch the bad guy? There are plenty of opportunities to feel satisfied with the work you do.

Just like types of accounting, there are plenty of jobs within the accounting field. Not everyone is striving to be a chief executive officer, and that’s ok. Some people are quite happy just doing public accounting, and it’s an area that is widely needed. Maybe you’re more interested in doing payroll or accounts receivable. These positions don’t require you to have a high-level education, and you can get a good job with decent pay with an associate degree. Bookkeepers do much of the same type of work and don’t need any formal training at all.

When it comes to training and education, you will need more than just your formal accounting major education, especially if you hope to be in tax accounting or a certified public accountant. You have to meet the schooling demands listed on the job description; however, you should also have hard skills and soft skills that complement the position. Ensure you have these on your resume as well so that employers see that you are equipped with the specific skill sets.

Accounting is extremely important for your business. So important that it’s probably the main thing keeping you in business. Accounting lets you know who owes you money, how much your company is worth, and teaches you how to keep a record of all of your financial statements, incoming and outgoing transactions, taxes, and so much more. Without accounting, not only could you be without a business, but you could also be in trouble with the government.

If you’re looking to get into the field of accounting, there’s plenty of opportunities out there, no matter how much time you are willing to invest in your education. 

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