Accounting Basics

The accounting basics include an overview of accounting. Accounting is a profession in which trained accountants gather financial information about a company or individual and report this information in a summarized format that can be understood. Accountants must be certain to capture all financial events or possible events that have an effect on finances.

Usually, before an individual becomes an accountant, he must go to college and acquire a bachelor degree. From that point, many go on to work for a CPA firm and then take a CPA exam to become a Certified Public Accountant. Other accountants work for businesses as cost accountants, payroll and accounts payable clerks, financial advisors, etc. There are many different types of accountants and job descriptions.

In a four year degree program, an accountant will learn what accounting is, the principles of accounting, how to use accrual accounting, cash basis accounting, accounting formulas, accounting terms, internal controls, as well as learn about accounting history and ethics.

Accounting is used by:

  • Management of a company to control revenue and expenses and improve efficiencies.

  • Investors, creditors, and customers of a business to determine if the business is in sound financial shape.

  • Government taxing authorities.
  • Calculator and spreadsheet to illustrate accounting basics
Accounting is very important to the world of business. Without it, the country and the world would not have much to rely on to determine if a business is in good financial shape. A business is run by analyzing costs and revenues to determine if products and services are profitable. It is the accountant's job to insure that revenue and costs are accurately reported in order to aid management and other stakeholders in a business in making well informed decisions.

Can you imagine a bank making a loan to a business without knowing what their revenue and expenses are? Would you invest thousands of dollars in company stock if you didn't understand their financial position?

While there have been scandals such as Enron that have involved misleading accounting, the system we have is continually improving and evolving.