Section 1: Accounting Cycle
The accounting cycle is one of the most important processes in theentire world of accounting. From the first transaction to the final closing ofthe account, it sums up the entire accounting process. Company accounts arekept up and continued through this process to ensure payments are handled. Thecycle acts as the accountability for all money to be known and balanced. Althoughthere are different approaches, the main steps in the cycle are as follows:
Initial transaction
Journal entry
Posting to the general ledger
Trial balance preparation
Worksheet preparation
Financial statement preparation
Closing entry
What do you think?- Which general ledgers are you familiar with?
- Which steps in the accounting cycle require the most time and thought?
Section 2: Main Accounting Principles
Thefollowing concepts are referred to as the Generally Accepted AccountingPrinciples, also known as GAAP. They're set by the Financial AccountingStandards Board.
- Accrual principle: States that transactions should be recorded when they
occur rather than when the payment was received.
- Conservatism principle: States that expenses and liabilities should be recorded immediately, while revenues and assets should only be recorded when they occur.
- Consistency principle: States that once you start using a specific method of accounting, you should stick with it until you find something inherently better.
- Cost principle: States all businesses should only record assets and liabilities at their original cost.
- Economic entity principle: States a business owner's personal transactions should never mingle with the transactions of their business.
- Full disclosure principle: States you should offer all necessary information required for the reader to understand a financial statement in plain sight, printed on the statement.
- Going concern principle: States that you should assume your business will continue to operate into the foreseeable future.
- Matching principle: States that all expenses should be recorded alongside
revenue.
- Materiality principle: States you should record any transaction which may have the chance of influencing a future decision for anyone reading a financial statement.
- Monetary unit principle: States that only transactions that can be measured in common currencies should be recorded.
- Reliability principle: States that it's only necessary to record transactions that can be proven.
- Revenue recognition principle: States that revenue should only be determined as such after the earnings process is completed.
- Time period principle: States that businesses should stick to a standard time in which to report their earnings and transactions.
Section 3: Financial Accounting and Business Management
The daily operations of everybusiness are completely dependent on money: If a business's finances aren't inorder, the entire company will face immediate and detrimental consequences. Therole of accounting and finance in business management is huge, and all accountantsmust understand how the two fields overlap.
An understanding of how financial accounting and businessmanagement interact will allow accountants to:- Create financial
records that will allow management and shareholders to understand the company'splace in the industry
- Determine the
company's place in the industry relative to the competition
- Develop plans and
strategies that will make it possible for the company to excel
- Analyze both short-
and long-term operations to decide what's working and what isn't
- Create budgets in a
responsible, sustainable manner
A thorough grasp of how finance and business management interact will allow accountants to better serve their employers. It will also give them the skills necessary to operate their own business if they choose to open one someday.
What do you think?What role do you see business management play in accounting? Additional Resourcesfor Financial Accounting and Business ManagementSection 4: Functions of Accounting
Accounting is a broad field withmany areas of specialty, and accountants fulfill several different functions ina business.
Here are the main functions that accountants can fulfillfor a business:
- Internal auditing: Accountants who
specialize in internal auditing work to minimize fraud and mismanagement withinthe business. They ensure that a business's finances are being handledproperly, and make sure that no employees are abusing their position orstealing from the company. This reduces the company's losses while alsobuilding confidence for shareholders.
- Management
accounting:
Management accountants work closely with the management team of abusiness to boost profits and extend the company's reach. They may analyzecompetitors so they can help managers set the prices of goods and services moreeffectively.
- Financial accounting: Financial
accountants focus on recording all transactions and creating financialstatements for a business. These statements can be shared with investors andother people on the outside who have a stake in the business.
- Tax accounting: Tax accountants
have the important task of making sure that all tax regulations are followed bya business. They work closely with the management team to file tax returns to saveas much money as possible for the business.
Section 5: Taxes
The Internal Revenue Code (alsoknown as the IRS) sets strict guidelines that govern all United Statesbusinesses. Tax accountants must learn to navigate these laws and thoroughlyunderstand how they apply to all United States businesses. Every business inthe country must comply with tax laws, whether it employs one single person orten thousand.
Tax accounting is one of themost in-demand accounting specialties, and some accountants focus entirely onthis very complex area. Different businesses are subject to different laws, andtax accountants must learn how to work with them all. They learn all thepenalties a business or individual will face if they don't comply with taxlaws, as well as how to avoid them. To gain a complete understanding of thefield, tax accountants also must understand why these laws were put in place tobegin with.
The entire field of taxaccounting centers around tracking funds and ensuring the IRS receives theirshare of the profits. Students focus on tax accounting basics during theirundergraduate accounting program, but there are so many different regulationsthat it takes years of detailed study to learn them all. This is the reasonthat many accountants choose to pursue a master's degree in tax accounting.
Subspecialties of tax law include:- Federal income tax
law
Individual incometax
Business income tax
State and localtaxes
Financial planningand taxes
Calculating gainsand losses
Property tax
Corporations andpartnerships
Section 6: Bookkeeping
What is bookkeeping in accounting? Bookkeepers are critical for everybusiness. There's always a need for detail-oriented, critically thinkingindividuals to record transactions and prepare financial statements. Intuit QuickBooksis the preferred bookkeeping tool for many established businesses. Thissoftware makes it easy for accountants to process payroll and track otherwork-related expenses of the company. Bookkeepers will track debits and credits.Precise bookkeeping will allow the company to know where they stand with theirfinances. It also provides financial information to investors, the governmentand other external users.
Some generalbookkeeping concepts are:- General ledger
preparation:
a summary of a company's transactions including credits and debits
- Financial
statements:
preparing balance sheets and income statements
- Payroll: paying wages and
reporting taxes
- Merchandise
inventory:
recording costs and reporting inventory of a business' merchandise
- Fraud prevention: prevention
techniques for theft and embezzlement
Section 7: Financial Statements
Keeping detailed financialstatements is a key skill for every accounting major, and all accountingprograms stress the importance of recording daily transactions. Accountantsmust become familiar with the processof writing financial statements and learn how the different types ofstatements relate to each other.
The definitions of the three main financial statementsare as follows:- Income statements:
Displays a company's revenues and expenses during a specific period. It'ssometimes called a "profit and loss statement" as well.
- Cash flow statements:
Shows the amount of cash that enters and leaves a company during a given period.
- Balance sheets: A versatile
report that displays assets, equity, and liabilities for a company. It alsoallows accountants to calculate the rate of return. It can show how much moneyshareholders have invested, as well as how much money is owed to and by thecompany.
Detailed knowledge of these three key statements allows accountants to effectively analyze financial data from competitors. They can also use these statements to gauge their company's overall performance and determine how to improve its ranking in the industry. Mastering the creation and analysis of these three statements allows accountants to compile annual reports and determine a company's overall health as well.
What do you think?How familiar are you with the financial statement process? Additional Resources for Financial StatementsSection 8: Technology and Accounting
In recent years, technology has had amajor impact on accounting and how financial transactions are processed. Fromthe most popular bookkeeping programs to state-of-the-art tax technology, thelatest programs have been designed to make an accountant's job easier.
Those in the accounting field must stay current on emerging technology and learn how to use it to their advantage. Excel and QuickBooks are general ledger programs taught in most college-level accounting courses. Some classes will prepare students to pass a certification exam such as the MOS Excel test upon completion of the program. These basic computer programs are essential for nearly all common accountant job duties, such as:
Payroll
Report preparation
Competitor analysis
Tax preparation
Recent accounting technology to watch for:
Cloud Computing- Online storage of data is already a familiar concept to many. Forbes reports that the public cloud storage market will increase to $331.2B by 2022. The ease of storing, saving and retrieving information makes Cloud computing ideal for accountants. These programs will require a subscription. QuickBooks offers an Online version. Other programs include Kashoo, Xero and FreshBooks.
For Futher Study: Cloud Computing Tutorial for Beginners (YouTube)Blockchain Technology- This database secures transaction information with all involved parties and allows it all to be stored in the same place and efficiently accessed.
For Further Study: Block Geeks Video Guide: What is Blockchain TechnologyAutomated Accounting Technology- Data-entry is becoming a thing of the past. Automated technology is the way forward and may find those with an accounting background reinventing their role within a company.
For Further Study:Accounting, Automation and Change (YouTube)Optical Character Recognition (OCR)- This software scans documents and translates them into machine-recognizable text. This includes hand-written notes, receipts, and photos. The OCR software can search through these saved items that allow accountants easy access to these materials.
For Future Study: Computerphile Optical Character Recognition (OCR)
Section 9: Accounting Key Facts and Terms
Types of Accounting Jobs
Accountantsare indispensable to the success of a business. There are many specialties anaccountant may choose to pursue.
Some of the most common accounting careers are:- Certified Public Accountant (CPA): CPAs must pass the Uniform Certified Public Accountant
Examination to earn their certification. CPAs are in high demand as businessconsultants for a wide variety of industries. They're qualified to take on manydifferent accounting roles, from tax preparation to finance management.
- Tax Accountant: Tax
accountants must be highly familiar with all state and federal tax laws. Theyprepare taxes for both businesses and individuals and can choose to work for abusiness or on a freelance basis. They also offer guidance on how to strategizeto receive the largest income tax refund.
- Chief Financial Officer (CFO): Many medium-to-large businesses employ a CFO to oversee
the entire financial department. The CFO works closely with the CEO and therest of the accounting staff to create detailed budgets and financial plans.They also handle report preparation and shareholder relations.
- Staff Accountant: Staff accountants are one of the most common accounting professionals, and there's bound to be a few students in every class who aspire for this position. They handle bookkeeping and report preparation, as well as budget creation. This entry-level position will often be an accounting major's first step after graduation.
Basic Accounting Terms
- Accrual: Adjustments such as
expenses and losses that have been completed but not paid. Accruals may impacta company's net income, even though money has not yet been exchanged.
- Cost: The cash required
to purchase any type of asset, including transportation fees.
- Expenses: The costs required
for a company to operate and make money. Wages and cost of inventory are twoexamples.
- Revenue: The total income a
company receives from all business processes.
- Income: The total amount
earned after deducting all expenses and costs from the revenue.
- Loss: Incurred whenever a
company loses money.
- Capital: All financial
assets held by a company.
- Fund: Money set aside for
a specific reason, such as insurance or charitable foundations.
- Gain: Money earned after
selling an asset.
- Investment: A monetary asset
purchased in the present that is intended to appreciate over time.
- Liability: Money owed to
another individual or company.
- Net profit: Calculated by
subtracting the cost of goods sold from the total sale price.
Accountant General Job Duties
What are good entry-level accountingjobs? To answer this question, it's important to first understand anaccountant's general job duties.
Entry-level accounting responsibilities:
Accountants can expect to take on thefollowing responsibilities in their first accounting job out of college.
Note: Theseoften overlap with junior accountant job responsibility, as the positions areinterchangeable at most firms.Keeping and recording financial transactions
- Preparing financial reports such as balance sheets and
income statements
Updating accounts payable and sending invoices
Assisting mid-level and staff accountants
Mid-level accounting jobs can eventuallytransition into other positions after working with an organization for several years.Knowing what to expect from these positions allows them to develop their skillsand focus on essential areas of study so they'll be well-suited for the roleafter gaining enough experience.
Mid-Level accounting job responsibilities
After gaining a few years of experience,an accountant may be trusted with the following additional responsibilities. Abachelor's degree is usually required for a mid-level accounting position aswell.
Note: Theseresponsibilities often overlap with staff accountant job responsibility, as thetitles are interchangeable at most firms.Supervise accounts payable and accounts receivable
Supervise payroll
Work with the management team to analyze competitors
Create detailed financial plans
Prepare annual reports
Prepare taxes and work to achieve the highest refund possible for the organization
CPA
Upon entering their undergraduate program, many students find themselvesasking, "What does a CPA do?" Although it's one of the most common accountingjobs, there's a surprising amount of confusion surrounding the title. Studentsmust understand the difference between a CPA and a regular accountant beforesettling on a career path.
While five states allow accountants tobecome CPAs without an accounting degree, the vast majority require abachelor's degree or 150 credit hours in accounting before students can sit forthe CPA exam. The CPA exam is notoriously difficult, and many students areintimidated because they've heard that 50% of test-takers fail on their firstattempt. You can take the exam as many times as you need to pass (but only onceper testing window). If you're pursuing a bachelor's in accounting, you'llspend plenty of time preparing for the exam during all your undergraduatecourses.
After earning their license, CPAs have some unique abilities that other accountants don't have. They're permitted to prepare audited and reviewed financial statements, while other accountants can only prepare compiled statements. Since public companies must produce audited statements to comply with regulations, CPAs are in greater demand than other accountants. As a result, they can expect to earn an average of 15% more income as well.
What do you think?Are you considering a career as a CPA?Additional Resources for CPASection 10: Typical Courses Accounting Students Take
The following courses are included inmany accounting programs across the country. A brief overview of the curriculumwill let students know what to expect when it comes time to take the class.
- Financial Accounting: At many schools,
this course is also called "Accounting 101." Students learn all thefundamentals of the business and gain an understanding of key principles suchas GAAP and technology in accounting. They also learn about proper businessethics.
- Managerial
Accounting:
This course will teach students the differences between managerialaccounting and financial accounting. They'll learn key terms, problem- solvingtechniques, and more. Budget preparation and planning will be discussed aswell, and students will learn how to coordinate with a business management teamto boost profits.
- Accounting Software
and Information Systems:
This course teaches students to prepare financialstatements, budgets, and special reports using accounting software. Studentswill become familiar with the software most commonly used at businesses acrossthe country.
- Foundations of
Business:
This course teaches students how to use strategic thinking to applybusiness theory to their accounting position. Students will learn how to makeinformed decisions by conducting financial analyses as well.
- Creativity, Innovation
and Entrepreneurial Thinking:
This course stresses the importance of thinkingcreatively in a business setting. Strategies for forming an entrepreneurialmindset are also discussed.
- Introduction to Computational Thinking for Business: Students will learn to solve problems using data analysis based on a computational model. They'll study algorithms, automation, and other key concepts
Section 11: List of Accounting Degrees (and Descriptions)
Some students may have questions aboutthe different accounting degrees and specializations available to them. Hereare the most common degrees most accounting students pursue, as well as thespecializations they choose to accompany them.
- Associate's in
Accounting:
A two-year degree that qualifies the recipient for entry-levelaccounting jobs such as accounts payable clerk, payroll clerk, and bookkeeper.
- Bachelor's in
Accounting:
A four-year degree that allows graduates to take on mid-levelaccounting jobs such as auditor and financial planner. It is also part of thequalification process for becoming a CPA.
- Master's in
Accounting:
An advanced degree that qualifies the recipient for high-paying jobssuch as CFO, corporate accountant, and management positions.
- MBA in Accounting: An advanced degree like
a Master's in Accounting that allows the recipient to fill high-levelaccounting positions such as financial advisor and manager.
- PhD or DBA in
Accounting:
The highest-level accounting degrees. These will qualify the recipientfor the most advanced accounting jobs. Recipients will also be able to teach asa university professor.
- Accounting and
Business Management:
A specialization that prepares students for a high-levelaccounting job working with managerial teams. The business side of accountingis heavily emphasized.
- Financial Accounting: A specialization
that deals with preparing financial reports for business and public use. Studentswho choose this path will become exports in reporting.
- Forensic Accounting: This specialization
prepares students to study financial crimes and to analyze evidence in criminalcases.