Accounting
Overview
Accounting is the process of recording all the transactions of a firm that affects its value, or the mix of
assets and liabilities that comprise its value. Typically this means, that whenever a transaction occurs that
involves the exchange of cash (or assets convertible to cash) for some service, product or asset, it is
recorded in the firm's accounting system.
Accounting Equation
Accounting creates a set of accounts that measure the financial activities of the firm. At the top level, there
are three primary accounts: assets, liabilities and equity. Assets are things that are owned by a business that
have a positive value to the firm. Liabilities are aounts that are owed by the firm to someone else. Equity
is the difference between the two, that is, assets minus liabilities and represents the value that is
owned by the owners of the firm. After re-arranging terms, the fundamental accounting equation is
{% Assets = Liabilities + Equity %}
- Chart of Accounts
is a comprehensive listing of the accounts in a firm's books and categories to which each account belongs. For example,
the Cash account is an account within the chart. It can be classified as a Current Asset, which can be further classified
as an Asset.
The Accounting Cycle
- The Recording Process: is the initial process of
recording business transactions in a company's books.
- Adjusting the Accounts : at the end of the accounting cycle,
a company's accountants will adjust the books in order to account for material changes in the asset/liabilities
of a company that do not occur through a recordable transaction.
- Closing the Books : finishes the accounting cycle.
The Financial Statements
A company's
financial statements
summarize the information in the company's books. They consist of the following four statements.
- Income Statement
- Retained Earnings
- Balance Sheet
- Statement of Cash Flows
Accounting for Investments and Securities
Accounting Analytics
- Budgeting : describes the process used to
create a budget and the various budgeting forecasts.
- Querying Accounting Data Often times a company will wish to analyze its accounting data in ways that are not found in the
company's financial statements. Generally, this requires getting access to the raw data and
then querying it.
- Cost Allocation is a process
of taking the expense data in a company's books and allocating it to various products, services, or customers in order
to help in the profit optimization process.
- Forensic Accounting
