In financial transactions of business— the systematic recording, reporting, and analysis are termed as accounting. It is a system that is used to measure business activities, process information and help aid in making relevant business-related decisions.
Usually, accounting is referred to as the ‘language of business’, hence the better the understanding of language— better are the decisions made. The basic accounting terms include terms like revenues, liabilities, assets, expenses, balance sheet, income statements and flow of cash.
The field of accounting is governed by basic rules and principles- it forms the basic framework on which more complex and legalistic accounting rules are based. The basic benefit of GAAP is that it provides a set standard of accounting principles which can be used by a company to prepare their financial statement in the case of issuing it in public.
Since it is a standard set of principles which can be used by any business organization it helps in comparing one company to another. The GAAP has gained complexity since the transactions in business became more complex.
Economic Entity Assumption refers to the difference maintained in the personal and business transactions made by the proprietor or owner in a business.
Monetary Unit Assumption refers to the fact that all economic activity is measured in US dollars hence recording selective activities that can be expressed in dollars.
Time period assumption relates to the fact that it is possible to complex business activities in a short time interval e.g. on an income statement 31st march 2016 means three months ended.
Cost Principle can be understood as— an accountant refers to cost as the amount of money spent on buying it, hence on financial statements these terms are referred to as historical cost amounts. The cost of an asset does not increase in value and is neither reflected on the financial statement of a company.
Revenue Recognition Principle allows a company to earn and receive revenue in the initial stages of operation but receive no revenue in actual cash in that month of operation.
Materiality refers to the liberty of an accountant to defy a different accounting principle if the amount of cash received in insignificant.
Conservatism is a principle that allows the accountant to choose the less costly asset in a situation where two acceptable options for reporting an item arise.
Current Trends in Accounting
Due to increase in system integration usage more and more companies have opted for cloud storage hence making information more easily available to be accessed through a cloud.
More reliability on social media platform
Due to the vast and versatile platform of social media, it is easier to find relevant and reliable accounting professionals and clients.
Value-added services (to clients)
The role of accountants is changing and needs more versatility as they need to go beyond their accounting role and guide the clients as consultants.
Accounting has helped business profoundly by providing useful and reliable financial information to stakeholder and investors. Since Accounting is known as the language of business it acts as the most important mode of communication and caters to the needs of clients hence shaping business and providing opportunities to stakeholder and investors.
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