Understanding Accounting Practices

Accounting is a very complicated formula of numbers, practices and principles. There different accounting practices that include financial accounting, managerial accounting, and auditors. Financial accounting involves record keeping and financial statements. Financial reporting is also a job for a financial accountant. Managerial accounting involves more of the financial matters of a business's revenue and controlling costs in a company. A managerial accountant is in charge of budgeting as well. Auditors have the responsibility to confirm financial statements within the organization and that all statements fall into place with one another.

Accrual accounting involves looking at the economic standings in the area to make a estimated budget and profit for the time being. When this method is used in a company, the sales from the company show up immediately because it is expected that the cash will be there soon. I feel that the strength in this method is the preparation it takes to make a budget and get a feel for how the economy will be. The weakness is that the balance sheets show the transactions immediately regardless of the type of payment and that may have a security risk.

With cash flow accounting, the money can show up on a balance sheet as dividends, interest, and investments. Transactions can be produced within or outside a company and can be positive or negative. With this type of accounting, the goal is to assess the ability to pay dividends and interest while making future profits.

Fund accounting is usually used by the government and non-profit organizations for organization rather than profit. Fund accounting keeps all the company's accounts organized and shows how the money is spent because the money is usually funded from another organization or company. When concerning money, the government does use surplus and deficit when financial reporting is completed. There are two accounts in the government that include federal funds and trust funds. When considering non-profit organizations there is a couple fund accounts that are restricted and unrestricted because the money may be donated for a certain cause. There are land, building and equipment funds that are strictly for that cause.

Accounting is very important to the government, non-profit organizations, and for profit organizations. It is the only way that we could be so up to par on financial matters in the country and in each individual company. If there was no accounting taking place in companies, they would have 'lost' money that would never be seen again and no way to make up for it in profit because the company wouldn't know where they stand.

Sources:

Investopedia. Accrual Accounting www.investopedia.com

Wikipedia Fund Accounting www.wikipedia.org

Food and Agriculture Organization of the United States. Chapter 3-Cash Flow Accounting. www.fao.org