It is a field of study that starts from the economy that reflects the financial movements of a company, entity or individual. But we tell you in great detail What is accounting – Definition, Meaning and Concept.
Accounting is the science that consists of studying and analyzing the financial situation of organizations, whose purpose is to give owners or managers information regarding all the effects that commercial operations cause in those elements, thus being able to analyze them and be able to establish strategies. needed to improve economic performance.
Its functions are: Record, analyze/classify and summarize commercial activities together with their effects.
When we register, the objective is to record the activities of a business in writing, when the activities are already noted in a clear and concise manner; to analyze and classify an orderly procedure of the events that take place daily in the business is required, in this way it is easier to interpret the records.
It is not only one operation but the sum of all the operations of a day, week, month or year.
Accounting is in charge of managing expenses and income of a company, since any developing company constantly carries out “Buy, Sell” operations and according to those activities that its assets carry out can vary as well as obtain a profit or a loss.
Accounting has existed for millions of years, beginning in rudimentary cities such as Egypt and Rome, but the current accounting that is studied today originated in Italy by the work of Luca Pacioli in 1494 called “Summa de Arithmetica, Geometría, Proportioni e Proportionalita”, said work describes the accounting methods of Venetian merchants, commercial use, among others.
This document established double entry accounting, which we know as “Debit and Credit.” One of the beginnings of double entry says: “There is no debtor without a creditor, and vice versa.” Since there is no game without counterpart.
This is how accounting works
- Balance Sheet is a financial report where the economic situation of the company is reflected, since the owner needs to know the situation of his business. It is the development of the equation:
Assets = Liabilities + Capital =
Patrimonial statements: As patrimonial elements we have: - Assets: They are those elements that represent goods, rights and other resources that the company controls, it could be said that they are the financial resources of the company.
Assets = Capital
The commonly applied classification is usually:
Current or current assets: They are the assets and rights that are acquired with the purpose of becoming money in less than a year in the company. The most common current asset items are: - Cash: The cash account contains cash, checks, money orders, and money orders. All means of exchange that banks accept for their value upon receiving it in deposit.
- Notes receivable: Here the rights that the company has left to collect are indicated, as well as the effects of changes can be represented as bills of exchange or also as a promissory note, since they are written commitments to pay a sum of money in a determined date and name of the person.
- Accounts receivable: Represents that the company has the right to collect an amount of money from certain people or companies, generally accounts receivable are initiated due to sales of merchandise on credit.
- Merchandise inventory: Here the items that the company’s merchant has in stock for sale are represented. Non-current assets or Fixed assets: These are all the items that represent goods or rights that have been acquired so that they remain in the company for more than one year, are not for sale purposes.
- Delivery equipment: Includes automobiles and other items used in the delivery of customer merchandise.
- Desk or Office Items: Desks, calculators, chairs appear in this account. All furniture that is not used directly for the sale of merchandise.
- Intangible assets: It is everything that, as his word says, we cannot touch, that is, of an immaterial nature. An intangible asset can be the value of a brand.
- Short-term assets: They are the titles issued by both public and private entities with the purpose of obtaining short-term financial resources from investors.
- Long-term assets: They are assets of a tangible nature that are valid for more than one year, and that are not resold but are used for the operation of the company. Example: Real estate, vehicles, machinery.
- Liabilities: Liabilities include the assets that have a financial obligation, that is, debts and payments to third parties.
- Non-current or fixed liabilities: Debts with a maturity greater than one year belong to this group.
- Mortgages payable: A mortgage in charge of a company represents a debt that is in favor of the creditor with the guarantee of some of the assets of the business. In the event that the debtor does not pay the debt, this type of guarantee gives the creditor the right to take legal action.
- Current liabilities: Those debts that expire before one year, such as invoices to suppliers.
- Notes payable: This is the name given to the promises of payments written and made by the merchant in favor of someone to whom he owes money. It can be a creditor from whom you buy merchandise or a bank that has made you a loan.
- Accounts payable: It is the financial obligation of a business, Commonly it comes from a purchase on credit, where the buyer promises to pay at a future date for the selected merchandise.
- Accumulated liabilities: This selection includes the sums that must be paid to the government (taxes), the salary of the company’s employees. These remain until paid in cash.
- Net worth: The equity of a company is the total value of a company, once the debts have been discounted, that is, it is the difference between assets and liabilities.
To obtain the net worth of a company or individual, this formula is used: PN= Total Assets – Total Liabilities= - Production costs are values to take into account.
Tips
The purpose of accounting is to record all the economic and financial operations carried out by the company, control the efforts of the administrators and all the tax charges of the company.
Knowledge of accounting is essential for the person who is interested in understanding the modern economic system.
Accounting has different specialties, some of which are:
- Cost accounting: is one that deals with accounting for manufacturing costs and, therefore, only addresses production and its different processes, without extending to the movement of the company’s assets as a whole.
- Administrative accounting: This accounting is focused on the most administrative aspects of the company and is used to assess compliance with established objectives and better strategies.
- Tax accounting: It is used to record reports related to tax returns and their payment.