In the accounting process transactions, they have to be recorded in an structured manner based on processes and guidelines that are called accounting practice.
The company must adhere to these accounting procedures for the purpose of preparing legally-required financial statements, including statements of income, balance sheet and cash flow statement, as well as the statement of equity of stockholders.
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Accounting Practice
Accounting practice is applying accounting concepts and techniques to collect, categorize, and present financial data for an organization or business. Financial transactions are logged in a consistent and systematic way, financial accounts and statements are created and utilized to make business-related decisions. Accounting practice is using financial information to provide data on your financial results and situation of an organization or business.
For instance, a company owner could review their income statement to determine how much money the company has generated and the profit it has earned using the information to decide if to put money into an upgrade in equipment, or to expand their company.
The Goals of Accounting Practice
The primary goals of practice in accounting are to provide data that can be helpful in making business-related decisions, and to meet the legal and regulatory obligations. Particularly, some of the main goals of practice in accounting include:
- Recorded financial transactions
- Offer reliable and valuable financial information
- Recapture and classify financial transactions
- Provide adequate information for decision-making
- Be sure to comply with the the legal and regulatory requirements
Accounting Methods and Practices
Companies employ a variety accounting methods to manage their accounting procedures. Cash accounting systems and an accrual-based accounting system are two of the most popular accounting techniques.
Cash Accounting
When it comes to cash-based accounting, expenses and revenue are recorded when they are received and paid. In other that transactions are recorded only when cash is used or received.
Accrual accounting
Accrual accounting is based upon the concept of matching. This accounting method is used to record the expense and revenue are accounted for when transactions occur, instead of when cash is received or when payment is received.
Different Accounting Practices
There are a variety of different kinds of accounting practices, such as:
Financial Accounting
This kind of accounting is the preparation of financial reports and statements that are designed for users outside the organization like creditors, investors, and regulators. The objective in financial accounting is give the details of a business or company’s financial performance and standing and to help users outside make informed choices.
Managerial Accounting
Accounting for this type is the process of preparing internal reports and analysis. These reports are later intended to be used by managers within the organization or business. In management accounting, data is available that can be used to make operational or strategic decisions.
Tax Accounting
This kind of accounting involves the filing of tax returns as well as calculations of tax due towards the federal government. Tax accounting assures that a company or other entity is paying the correct amount of taxes and is in compliance with tax regulations.
Auditing
This kind of accounting involves the independent verification and examination of financial reports and statements. Financial statements are inspected to ensure that they accurately reflect their financial position and performance.
Forensic Accounting
This kind of accounting makes use of accounting principles and techniques to look into financial irregularities like embezzlement, fraud or poor management. The objective of forensic accounting is to discover financial fraud and give evidence in legal actions.
Accounting Principles
Accounting principles are the rules and concepts that are applicable to accounting operations. It is the Financial Accounting Standards Board has released the accounting guidelines, standards, and practices referred to as GAAP. These principles offer an established framework for the creation and reporting of financial data and ensure that financial statements and financial reports of a business or company are accurate and consistent. They also allow for comparison.
“The Going Concern” Principle
This assumption assumes that an organization or business will continue to function for a long time to come as well as that the assets and obligations are assessed in terms of monetary value. This principle allows the creation of long-term financial statements like a balance sheet.
The Cost Principle
This principle stipulates that assets must remain at their initial value and any subsequent decreases or increases in value should not be reflected in financial statements. This is to ensure that the accounting statements are founded upon objective and reliable information, instead of estimations or judgements.
The Principle of Matching Principle
This is a principle that states that expenditures should be in line with equivalent revenues during the time during which they were made. This is a requirement for the creation the income statements which will show the net loss or profit of a company or other organization.
The Consistency Principle
The principle stipulates it is essential that identical accounting procedures and assumptions must be applied from one time period to the next, unless there is good reason for changing the methods or assumptions. This will ensure that the accounting statements of the financials are comparable across time and allows for users to quickly assess how the performance of their financials and the position of a company or other organization.
Conclusion
Accounting practice refers to the collection of accounting practices, techniques, procedures and internal controls that are used to process financial data within a business or an organization.
