Accounting is an important business process for companies operating in various industries. Different businesses are involved in different types of accounting based on their revenue stream. Let us know the basics of accounting in detail.
What is Accounting?
Accounting is the process of recording and analyzing the financial data of an organization or institution. All financial transactions are conducted for a better understanding of the financial arrangements of the company in the given accounting period.
Types of Accounting
There are different types of accounting to help you manage a simple account:
- Financial Accounting:– Financial accounting helps in preparing financial statements for tracking, recording, and reporting of all financial transactions. Examples of financial accounting are cash transactions, balance sheets, and income statements.
- Management Accounting:- Management accounting is done to assess the financial performance of a business over a specific period. Popular methods for management accounting are constraint analysis, AR (accounts receivable) management, financial leverage metrics, and cash flow analysis.
- Tax accounting:- The purpose of the tax accounting process is to create accurate tax liabilities for individual taxpayers, businesses, and non-profit organizations. This process is also important for filling out tax forms, calculating taxes due, and completing tax returns.
- Auditing:- Internal auditing ensures that a business is properly recording its transactions and conducting them according to established rules. There are different types of audits conducted by organizations such as investigative, compliance, financial, and tax audits.
- Cost Accounting:- Manufacturers and service providers rely on cost accounting to determine the actual cost of doing business. It looks at variable and fixed costs to evaluate different types of expenses such as production, materials, labor, overhead, and maintenance.
- Forensic Accounting:- Banks deploy forensic accounting, investigative agencies, police to investigate the financial activities of individuals and organizations. This type of accounting is used in cases of embezzlement and fraud.
- Internal Auditing:- Internal auditing is done to assess and correct financial irregularities within a company. Internal auditing is an integral part of companies’ risk management processes and policies.
What Does an Accountant Do?
To do accounting work, you need to maintain records of all expenses and income. It is the key process to manage finances efficiently and assess the performance of your business with ease.
Here are some other parameters that you need to follow while doing accounting work:
- Analyze all financial transactions by first preparing source documents and then using them to record all transactions.
- Create journal entries for recording transactions like sales, cash receipts, purchases, and more.
- Create a normal account after each transaction to display the changes made to the account so far.
- Prepare financial statements that include details about cash flows, balance sheets, and equity.
- Create a trial balance to ensure that the total credit is equal to the total debited.
- Update the account using the adjustment entries.
- Prepare an adjusted trial balance to avoid a mismatch between credit and debt amounts.
- Create a trial balance post-closing to check both debit and credit amounts.
What is Accounting Software?
Accounting software is used to manage and record accounting functions and calculate the financial data of a business. Accounting solutions help to keep track of all financial transactions of the company and generate reports.
Accounting software provides essential data for external and internal audits, periodic reports, and financial analysis for internal and legal purposes.
In addition, this software provides insights into various quantitative parameters such as inventory management, payroll, sales, purchases, credits, and debits, to name a few.
Advantages of Accounting Software
Accounting software helps to simplify complex and accounting procedures. Following are its major benefits:
- Simplified Tax Compliance:- Accounting software helps to simplify tax compliance by updating financial statements and maintaining an accurate record of accounts. The software’s built-in tax rules allow you to calculate tax based on invoices.
- Quick Invoice:- Popular accounting software solutions provide prebuilt templates for creating and customizing invoices. You can also send payment reminders for pending challans.
- Financial Data Protection:- Accounting management software ensures that all your financial statements, records, and invoices are stored in their respective folders largely and accurately. All financial data can be secured with software end-to-end encryption and user access rights.
- Saving Time and Money:- Accounting software helps companies to save resources. Manual tasks like maintaining records, preparing financial reports, etc. can be automated. You not only save time but also prevent the possibility of manual errors.
- Real-time reporting:- Online accounting software can be integrated into bank accounts to track inventory, sales, and expenses in real-time. Bank reconciliation can also be done.
- Accurate bookkeeping:- Cloud accounting software is best for balancing journal entries to get accurate financial reports for audit and taxation. All accounting records are maintained systematically, minimizing the chances of manual errors.
- Easy Collaboration:- Accounting software lets you set up users and allowed access. In addition, you can collaborate and share documents in real-time with multiple users.
Top 5 Accounting Software in India
Here is a list of accounting software in Hindi.
- Tally Prime
- Ezy Road
- Marg ERP 9+
- Reach Accounting Software
Accounting is an essential part of any business to record, organize and analyze financial transactions. To have better control over your financial data, it is best to keep organized.