What is Accounting?

Accounting is, all at once, one of the oldest professions in history, and one of the 21st century's most innovative growth industries. Don't believe it? How about the old part – the very oldest known written documents, from Mesopotamia, are trade records. That's accounting, right there. What about innovative growth industry? Job market demand for accounts is up, but accounting is right on top of the most exciting innovations in technology, from cloud computing to blockchain technology. So what is accounting? Well, it's way more than counting money.

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How Does Accounting Work?

At its simplest, accounting is a way to communicate the financial health of a business or an organization to any and all interested parties. It is a way of assessing the assets, liabilities and cash flow, or the future of an entity for all current and future investors. It is the lifeblood of a business and all types of business have basic information that is recorded to get that job done.

All accounting or bookkeeping has a standard set of accounting principles that stays roughly the same for every type of business. In this way there is unity in all business accounting procedures to ensure that there is unity and a clear understanding no matter what business is being monitored. This system is called GAAP – Generally Accepted Accounting Principles. There is no law enforcing GAAP standards, but that may not matter when a business has to report gains and losses to a credit agency or the government – or face an audit.

The Many Layers Of Accounting

Accounting is not just one thing; in a corporation or business, there are many layers or types of accounting. In very large companies and corporations, each of those layers might have its own department, staffed by many accountants all taking care of one small part. In small businesses, it might all be the job of one (very tired) accountant. Specializations include:

  • Taxes: Well, that one's obvious. Every business has to pay taxes, and every business wants to pay as little in taxes as they have to. A good accountant does that.

  • Payroll: Businesses have to play employees, but more importantly, they have to pay payroll taxes, social security, retirement, workman's comp, and so on. Payroll accountants keep all those balls rolling.

  • Accounts Payable and Accounts Receivable: The bills that need to be paid (to contractors, to vendors, to suppliers) and the payments that are coming in (from clients, from customers, from services) all have to be processed. If payments don't come in, someone has to alert collections; if payments don't go out, someone has to take the fall.

  • Bookkeeping: Income goes in one column, outflow goes in another, and if those two columns are out of whack, so's the business. The bookkeeper doesn't have any control over the money, but they make sure that every little transaction gets recorded.

Accounting and Technology

In the 21st century, all of this work is done with computers, and an understanding of the underlying technology is extremely valuable in making sure that everything is recorded correctly. Many accountants today specialize in exactly that – accounting information technology.

One of the most important jobs of an accountant is developing reports for the management and executives. This is where modern accounting technology really shines; computers can do analysis in seconds that once took highly skilled accountants weeks of research and crunching. Reports of any kind can be produced with the push of a button and a quick snap-shot of the transactions and cash flow are revealed. All kinds of reports are needed to gauge the company's success:

  • • Statement of Profit and Loss
  • • Balance Sheets
  • • Assets and Liabilities Report
  • • Retained Equity

All of these reports give a picture of what the company is doing and where it is headed. They can help to decide if the company is financially stable and if there are any adjustments to be made in the strategies for operation. These reports are good for the investors also. They are able to see if a company is worth investing in.

And when things aren't going right, it's time to call in the accountants who are specially trained to deal with indiscrepancies and kerfluffles – the forensic accountants and auditors. These are accountants who have extensive education and experience in investigation, trained to look for patterns and inconsistencies that may signal criminal activity, or just managerial incompetence. In either case, you don't really want to see them come through the door, but if things are bad, they'll clean it up.

So Yes, You Should Become an Accountant

So it's easy to see that accounting is a multifaceted field. If you think of accounting as just an adding machine and ledger, you're thinking too small. You may as well say writing is just moving a pen, or that an ultramarathon is just running.

Accounting is a complex discipline and a widely diverse, exciting career path. There are a multitude of career types and job opportunities available in the sphere of accounting, and the field is growing every day. After all, not everyone can do it. For one, there's a lot of math involved in accounting, and frankly, it's the rare mind that is naturally good in math. But more importantly, to succeed as an accountant, you need motivation, determination, organization, and a lot of smarts. It's a challenge not many are willing to take up, but for those who are brave enough, smart enough, and determined enough, accounting can be very rewarding.