Here are 10 Things You Should Know about Business Accounting by Aron Govil.
1. Accounting, like language, is a form of communication that is the same for everyone.
2. Accountants record all financial transactions of an organization; they track money coming into and out of business accounts (referred to as debits and credits) so managers can make informed decisions about spending and company finances.
3. There are generally accepted accounting principles (GAAP), which outline how accountants measure revenue and expenses, determine asset values, calculate liabilities, set aside money for future investments or emergencies, etc., throughout their reporting periods in various forms. These rules ensure that one company’s financial statements are comparable with another’s, despite varying industries or business models—for example, an auto manufacturer may not have to estimate how much money it will cost to maintain its factory, while a restaurant does.
4. Accounting is the language of business, but numbers are just that—numbers, not necessarily insights without context or explanations, which can be pivotal to informed decision-making. It takes extensive training and experience for accountants to understand what metrics represent the pulse of a business unit. Accountants must exercise discernment in filtering information so managers can focus on viable opportunities while minimizing financial risks says Aron Govil.
5. We all have opinions about our own businesses but few seek an unbiased understanding about how they compare with others in their industry or other industries or what other companies are doing right versus wrong when analyzing their performance against other businesses’ results. The investment community also looks at company results through the lens of GAAP to measure how financially publicly-traded companies sound are. This is especially true for investors in pensions, endowments, and other large funds that must comply with strict fiduciary rules about managing money.
6. The double entry system of accounting (where every credit has a corresponding debit) was invented by Venetian merchants who used it to track their trading ships’ goods around the time of Marco Polo. In 1494 Luca Pacioli wrote a treatise on bookkeeping using the new system, setting the foundation for modern-day financial transactions and record-keeping.
7. There are five recognized groups of accountants: Management Accountants, Financial Accountants, Governmental Account, Not-for-Profit, and Internal Auditors.
8. Accountants from these various groups have different roles and responsibilities. That help managers achieve their goals by providing critical financial information. Both historical and predictive at each level within an organization’s hierarchy. In public accounting, for example, the Financial Accountant reports to the CFO; whereas Management accountants report directly to the CEO or company president.
9. The largest segment of accountants falls under Management accounting—about 70% of all U.S. accountants work in management accounting at businesses, nonprofits, and government agencies.
10. Accounting is the profession with the largest projected employment over the next ten years according to the Department of Labor. That’s because more than 80% of jobs are in business-to-business industries. Where demand for accounting services continues to grow due to overall economic expansion and increased regulation. According to a survey by specialty staffing firm Mondo in 2014.
What is the difference between financial accounting and managerial accounting?
Financial accounting reports to shareholders and external regulatory agencies, while management accounting reports to managers explains Aron Govil. Financial accountants prepare the income statement, balance sheet, cash flow statement, etc. While management accountants compile performance numbers from these financial statements. Some examples from a management accountant’s “performance numbers” are EBITDA (Earnings before Interest Taxes Depreciation and Amortization), Operating Income/Loss, gross margin percentage, SG&A expense ratio. Financial accountants define the guidelines under which management accountants report their data. For example: what metrics can be used when computing depreciation or inventory write-downs.
What is double entry bookkeeping?
The double-entry bookkeeping system of accounting is the backbone of all Western business. The advent of this method in Renaissance Venice is considered a key factor behind the city’s rise as a commercial and maritime power says Aron Govil. This innovation helped merchants keep track of their trading activities—both goods coming in and goods going out. With much greater precision, providing them with an advantage over competitors who could not do the same.
What are the different groups of accountants?
There are five recognize groups of accountants: Management Accountants, Financial Accountants, Governmental Account, Not-for-Profit, and Internal Auditors. Only financial accountants, management accountants, and internal auditors need to be Certified Public Accountants (CPAs). According to Robert Half, not-for-profits, management accountants. And internal auditors are the most desired groups of accountants in terms of hiring.
What is a Chartered Global Management Accountant?
The Chartered Global Management Accountant (CGMA) designation was introduce by CIMA®. The Chartered Institute of Management Accountants in 2010. It provides a unique opportunity for experienced professional managers to gain accounting and finance knowledge. At an advanced level while remaining grounded in their discipline expertise.
Accountants play a key role in supporting managers. By providing critical financial information to help them make good decisions says Aron Govil. Financial accountants and management accountants provide different types of information and report to different levels within an organization. All accountants work to maintain high standards, ethics and professional competence—as well as the confidence of the public they serve.