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Home NonprofitNonprofit Accounting A Guide To Accounting

A Guide To Accounting

by Eric Burgess

Accounting refers to the process of auditing, maintaining, and processing financial information. Every business relies on accounting principles to organize, maintain, and process financial dealings. The majority of businesses and nonprofits hire accountants, or people who specialize in accounting, to make sure their business’s finances are updated and valid. In the sum of their responsibilities, accountants create financial reports and present them to managers, regulators, and stakeholders – even when it comes to nonprofit accounting. Accountants who keep daily records of a business engage in a process known as bookkeeping.

In short, accounting allows businesses and corporations to keep track of finances in the real world. People can also do accounting from home. All they need is a journal, pen, and pad to write down all of their earnings, purchases, and savings. Accountants do all of this and more, especially when tax season rolls around.

The History Of Accounting

Double-Entry Accounting

Accounting has its origins dating back to the start of trade and business. In fact, accounting came into existence as soon as trade and barter became a means of exchange between humans. Civilization understood the need to keep accurate records. Otherwise, it could mean losing more than its share of goods and services.

The earliest account of double-entry accounting did not emerge until Luca Pacioli, a Franciscan monk, transformed the business world. Business merchants and establishments saw the benefit of using double-entry accounting to help maintain accurate records. Its popularity and efficiency allowed it to grow to be one of the most widely practiced business standards today.

Tax Laws

The field of accounting has advanced in other ways since the introduction of the double-entry standard, such as tax laws. Tax laws laid the groundwork for tax returns and tax audits. In their heyday, many lawyers argued they should hold the responsibility for calculating tax returns and conducting tax audits. This changed once lawyers realized the difficulty involved in preparing taxes. As a result, accountants leapt at a very profitable opportunity to add to their practices. This created a career position known as the tax accountant within the industry. Other types of accounting are financial, internal, external, cost, and management accountancy.

Accountants As Moral Guardians

The Great Depression also strengthened the role of accounting in today’s modern business world. The crash of the 1920s resulted in the creation of stricter rules and regulations for businesses, including tax audits for corporate entities. These rules and regulations ensured that the corporations would hold themselves accountable for their financial dealings. In other words, accountants became the moral guardians for businesses. Accountants made sure to protect the general interest of the public, which restored consumer confidence in the business world.

Today the field of accounting continues its role as a watchdog for the common investor. Unfortunately, many dishonest accountants have been hired by corporate executives who abuse their power. This happens because the accountants hired by these corporate executives do not want to lose their jobs. As a result of this dilemma, the field of accounting is scrambling to find a solution to promote morals in business dealings. It may take a while to restore balance in regulating, auditing, and policing corporate liability. In fact, corporate shareholders may need to find the solution to keep executives from abusing their power in the future.

Resources About The History Of Accounting

Budgeting

Budgeting refers to the act of planning to save and spend within the restrictions of an individual’s planned income. People at home can learn to budget to increase their personal savings. In order for businesses to stay alive, they must project income and expenses in order to remain in operation.

Many business owners hire accountants to create a budget for each fiscal year. Accountants can create different budgets based on the needs of the business, such as the forecast, performance, and cash budgets. A forecast budget estimates figures within an expected specific time frame. Accountants may use figures from previous years to calculate estimates for the current year. The performance budget aims to provide estimates on upcoming revenues and expenses, usually on a service rate or per project basis. Lastly, the cash budget estimates how much the business will require throughout the year. Accountants create a cash budget by predicting future business transactions and cash receipts within an expected time frame.

Resources For Budgeting

Debits And Credits

Debits and credits confuse people often, especially in the field of accounting. In short, debits increase assets while decreasing liabilities and equity. Credits increase liabilities and equity while decreasing assets. Accountants record debits as any item that impacts or increases assets, such as equipment, bank balances, and accounts receivables. Businesses that make a payment on a loan toward an asset create a credit transaction. Accountants record both debits and credits for the most accurate bookkeeping.

People at home have their own debits and credits to keep records of in the long run. For instance, a payment on a car loan translates to debit before becoming a credit. Accountants deal with debits and credits on a daily basis due to a frequent exchange of value between assets and liabilities in business transactions.

Resources About Debits And Credits

Accounting Careers

A career in accounting can be quite rewarding. However, the individual pursuing the career must be good with numbers. Accountants can perform a variety of tasks, including reviewing and analyzing financial information for clients in the form of taxpaying, auditing, and advisory. The majority of accountants earn large salaries, especially if they become Certified Public Accountants (CPAs).

Accountants generally earn a four-year degree before entering the field. After obtaining two years of experience, accountants can sit down for the CPA-exam to earn their license. According to the Bureau of Labor Statistics (BLS), the median annual salary for accountants was $61,690. The demand for accountants will only increase as more businesses and corporations need a means to keep track of their financial records. This also applies for accountants wishing to work overseas.

Resources For Careers In Accounting

  • Surprisingly Exciting Accounting Careers: A list of five accounting careers, including international accountant, forensic accountant, IRS special investigator, comptroller, and Chief Financial Officer (CFO).
  • CPA Career Paths: The American Institute of CPAs explains how to become a Certified Professional Accountant (CPA).
  • Accounting Program Career Facts: Lansing Community College provides a detailed career profile for those studying to become an accountant.
  • Accountants and Auditors: The Bureau of Labor Statistics (BLS) shares the career outlook for accountants and auditors.
  • Accountant Average Salary: Payscale provides national employer data for those who chose to become an accountant on their career path.

Activities To Learn About Accounting

Accounting can be a complicated and intimidating part of any business model. Students have a harder time understanding the accounting concepts. In fact, skilled activities are the only way for students to understand the accounting function of a business. Learning activities place the students into a real life scenario that may help them grasp the role of accounting in a positive light. Most students need to understand the complexity of accounting in a fun, entertaining environment.

Activity Resources

Additional Resources

The field of accounting involves a lot of complex and confusing principles. Students who spend a little more time reading about accounting will grasp the concepts better than those who simply forget about it. Many organizations, associations, and publications provide information that can help students learn more about the field. Supporting instruction and documents will keep students on the right track, especially if they choose accounting as their career.

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2 comments

Preparing Your Children for the World of Accounting - The Financial Fairy Tales Blog The Financial Fairy Tales Blog October 13, 2017 - 11:36 am

[…] When money is spent wisely it can be the centre of one’s happiness rather than being the root of all evil. And it is imperative that your children know this as they grow. For more advice on how to prepare your children for the world of accounting when they reach adulthood, make sure to check out this guide. […]

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Penelope Smith July 18, 2018 - 7:11 pm

This is some really good information about accounting for teens. My little sister just got her first job. I liked your suggestion about explaining on debit and credit cards. That does seem like a good thing to understand when you are young.

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