What Is Accounting? A Guide

18th August 2020 | Accounting

Here at Williamson & Croft, we have been accounting for businesses in the North West and beyond for years now. Since day one, we have been going that extra mile to ensure businesses have their accounts in order and have efficient tax arrangements set up to improve their overall financial picture.

However, there is a great deal of jargon that comes with working in the accounting profession. So sometimes, it can be useful to pause and reflect on the accounting principles that guide us. So, in this guide, we’re going to look at the fundamentals of accounting functions, what the purpose of an accounting firm is to businesses and how it can benefit you.

If you work in industries like PropertyConstructionProfessional ServicesDigital & CreativeRetail & eCommerce or Technology & Software then get in touch with the accounting firm Williamson & Croft. Our group of skilled accountants will use modern accounting principles and software to improve the financial health of your business.

What Is Accounting?

Accounting is defined as the process or work of keeping financial accounts and can be traced back as early as 300 BC in Iran. The accounting process can be done by an in-house accounting team or it can be done by an accounting firm like Williamson & Croft. In practice, accounting tasks include recording all financial transactions that a business might undergo over a given period (it is usually broken down into months). A thorough accounting system will take all these transactions, accounting records and distil them so they can be summarised, analysed and reported on. These will include things like cash flow statements, balance sheets and other financial statements. This financial data helps businesses make decisions about revenue, tax and allows them to be regulated by agencies such as HMRC and other tax collection institutions. No matter the size of your businesses, financial accounting is a necessary business arm which allows you to function and look toward the long term, armed with the financial information needed to make decisions.

What Is The Purpose Of Accounting?

In its purest form, the purpose of an accounting system in a business is to provide financial information to different entities. Those entities then use that accounting information to make decisions.

The purpose of accounting is to compile financial statements like:

  • Income statements
  • Balance sheets
  • Statement of Cash Flows
  • Statement of Retained Earnings
  • Other disclosures that accompany these statements

4 Objectives Of Accounting

  1. Performance – Garnering accounting information allows relevant people in a business to determine how well it is doing in quantifiable measures.
  2. Liquidity – Not handling cash properly is one of the big reasons businesses fail. Having accounting information at hand allows stakeholders to see how much in the way of liquid resources a business has.
  3. Financing – Most businesses, at some point, will need to secure finance. Without key financial statements and other accounting information, securing finance just isn’t possible.
  4. Accountability – Regular financial reporting ensures there is accountability across the business. Directors can be held responsible for the overall financial performance thanks to financial records.

What Does An Accountant Do?

So, we’ve looked at the principle of accounting, but, what does an individual accountant or accounting firm do? How do they take these principles and expertise to their clients in order to bring value? Here at Williamson & Croft, our accountants do so much more than just bookkeeping. A large part of the accountant’s job is to offer advice to their clients about ways in which they can reduce the financial burden on their business. Be that by reducing their tax bill through different schemes or being advised on government initiatives that reward certain things, such as the R&D tax credit incentive. Here at Williamson & Croft, we offer lots of financial advice for our clients. These specialist advisory services fall under StrategyTransactions and Consulting. Other things accounts do include monitoring a business’ accounts to ensure they are in a healthy financial state.

How Your Business Can Benefit From Accounting Services

There is a myriad of ways in which you can benefit from accounting services here at Williamson & Croft.

Save Time

One of the most basic benefits, and in some cases most important, is the time saved by outsourcing to chartered accountants. No matter the size of your business some elements of it will get overwhelming and none more so than financial management. That in itself is a full-time job. Passing the responsibility onto experts can relieve this burden.

Discover Ways To Save Money

Another benefit is the money saved. We’ll look at ways you can reduce and cut margins to save yourself money. Rest assured knowing there is a team out there whose job is to gain an in-depth view of your finances, review labour costs, maximise pricing where possible and identify valuable customers.

Become More Streamlined

A third main benefit is how an account streamlines your systems. Cutting edge cloud-based accounting software and online systems mean you can get rid of those mountains of paperwork. Our accounting systems will incorporate a range of aspects from payroll to cash flow to tax returns so you can see what accounting actions are being taken at the click of a button.

Accounting FAQs

What Is ‘Capital’ In Accounting?

The term capital, in accounting, refers to any assets or resources owned by a business. They tend to be things that can help the business generate income.

What Is ‘Equity’ In Accounting?

Equity is the value of an owners interests after all the necessary liabilities have been deducted. The calculation for this is Equity = Assets – Liabilities.

What Is ‘Forensic’ Accounting?

Forensic accounting is the bringing together of accounting, auditing and investigative skills to examine the finances of a business.

What Is ‘Impairment’ In Accounting?

This is when the value of an asset has been permanently reduced in price. These assets tend to be fixed or intangible.

What Is ‘Auditing’ In Accounting?

An audit is the examination of the financial report of a company. The goal of an audit is to ensure the financial statements and records are accurate and fair based on the transactions they are based on.

What Is A ‘Debtor’ In Accounting?

Simply, a debtor is a company that owes money. If it relates to finance the debtor is often called the borrower.

What Is ‘Management’ Accounting?

A management account looks after a company’s account and advises managers about the impact and implications of the decisions made to help business growth and increase profit.

Williamson & Croft is a market leading accountancy, advisory and tax firm with particular specialisms in property, construction, retail, digital and creative, technology and professional services.

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