What Is Accounting: Objectives, Functions, Benefits and Types

Understanding Accounting – Accounting is widely known as the “language of business”. There are many quotes about the power and importance of accounting in everyday life, such as “The pen is mightier than the sword, but not the bookkeeper” by Jonathan Grancy.

This article will explain in detail what accounting is, its function in a company, the types of cycles and their principles. This is very important if we are going to be an entrepreneur.

Understanding Accounting

Some people think accounting is something that is related to the counting system, but the fact is that accounting is a work process that is not simple. This science has quite a lot of use in daily applications, especially related to business activities.

Correct and proper accounting allows company management to better understand its business finances. This is so that they can strategically plan future expenses to maximize profits.

With this knowledge, business owners can control whether their business is running well. Your accountant will tell you if you’re making a profit, what your cash flow is, what your business’s current assets and liabilities are, and which parts of your business you control.

Understanding Accounting According to Experts

Of the many definitions and understanding of accounting represent different things. These differences occur because the experts, explore different fields of science.

Here are some definitions of accounting according to some experts:

1. According to Weygandt, Kieso, and Kimmel

For them, accounting is a part of an information system that identifies a record and communicates economic incidents in an organization to interested users.

2. Sunyanto (1999)

For him, accounting is a stage of the process of collecting, identifying, recording, classifying, summarizing and presenting or reporting many financial transactions and interpreting the results for decision making.

3. Warren et al (2005:10)

In general, accounting is an information system that produces reports to parties who have an economic activity and company condition.

4. Suparwoto L (1990: 2)

For him, accounting is a technique for measuring and managing financial transactions and providing management results in the form of information to internal and external parties of the company. External parties are meant to consist of investors, government creditors, labor unions and others.

5. Soemarsono SR (2004)

The definition of accounting or accounting according to him is a process of identifying, measuring and also reporting economic information to enable clear and firm judgments and decisions for those who use the information.

6. S. Munawir (2005)

For him, accounting is an art rather than recording, classifying and summarizing an event which is at least partly financial in nature in a expeditious and direct manner or expressed in money, as well as the interpretation arising from it.

7. Paul Grady

Accounting is part of the body of science and organizational functions in a systematic, authentic & original way in recording, classifying, processing, writing summaries, analyzing, and also interpreting all transactions and financial events and characteristics that occur in the operations of accounting entities with the aim of providing meaningful information. management is needed as a report and accountability for the trust it receives.

8. Winarno (2006)

Accounting is a process of recording financial transactions and processing transaction data and presenting information to entitled and interested parties.

9. Bastian and Suharjono (2006)

In their book, Committee on Terminology of The American Institute of Certified Public Accountants Bastian and Suharjono (2006), the notion of accounting is the art of recording, classifying, and summarizing transactions and events of a financial nature in a meaningful way also in units of money and investing the results.

Accounting Objectives

Basically, the purpose of accounting is to record, collect and report information related to finances, financial position, and cash flows in a business.

When described more fully, there are several objectives of accounting in business systems:

1. General accounting objectives

  • Provide financial information, especially the company’s assets and liabilities.
  • Prepare a collection of information about changes in the various sources of the company’s (net) economy.
  • Provides information about changes in the company’s economic resources, assets, debt, and capital.
  • Presents some other information related to financial statements to help users of these reports.
  • Explaining the company’s financial information, is expected to help in making the company’s profit potential.

2. Specific accounting objectives

In particular, the purpose of accounting is to provide information in the form of reports containing financial position, results of operations, and other changes in financial position in accordance with Generally Accepted Accounting Principles (GAAP).

3. Qualitative accounting objectives

  • Provide relevant information.
  • The information submitted is in accordance with Generally Accepted Accounting Principles (GAAP) and can be compared. Submitting information that has been tested for truth and validity.
  • Presenting the information submitted can be understood by interested parties.
  • Provide financial reports for the benefit of parties related to company activities.
  • Presenting transaction information in real time and as quickly as possible.

Process in Accounting

As explained above that in an accounting is a process related to finance whatever happens in a business or organization.

Accounting has a process, which consists of recording, summarizing, analyzing, and reporting data. The following is an explanation of the process:

1. Take notes

The most important process in the accounting process is the recording of transactions that occur in the business. This process, commonly known as bookkeeping, involves recording and entering transactions on the books.

In an accounting process, accounting is usually done for detailed accounting purposes and is a report to present data in the form of final financial statements.

2. Summarizing

In general, raw data is the result of recording transactions and is considered not very important. This raw data has little effect on the decision-making process.

However, the important role of an accountant is to use raw data, group it into several categories, and translate it. So, the usual process is to record transactions, then summarize them.

3. Report

All activities carried out within the company are the responsibility of management. Every entrepreneur needs to know the various activities the company does and how the company spends its money.

In this case, the entrepreneur usually receives the company’s financial statements which are sent every month. At the same time, there is also an annual report that summarizes all the activities of the company.

4. Analyze

Finally, analyzing is an important final process in accounting. After recording and summarizing, of course we need to draw conclusions. This is where the important role of a management to check the points between positive and negative.

In analyzing all of this, accounting introduces a concept of comparison. Where we can compare sales, profit and loss, and others to determine and also analyze work and make decisions.

Of the many meanings of accounting, all of them almost have the same goal, namely each goal of providing accurate reports is of course related to the company’s financial problems.

The definition of accounting will be very helpful in presenting detailed reports on the company’s expenses and income so that it can find out the profits and losses. In addition, the application of accounting knowledge will also help companies to identify employees who commit fraud.

Accounting Functions in a Business

There are several functions of Accounting itself in a business, namely:

1. Accounting helps you plan for growth

When you want to plan the growth of your company, it is very important to set goals. Like how should profits be made one year from now? How about in five years?

Financial reports help you in assessing exactly how fast a business is growing. Without an accurate financial report, it may be tempting to use easy metrics like “sales growth”, which don’t give you a complete financial picture.

Has the cost of goods sold increased? Is the profit margin less? Are the growth goals appropriate? Without a financial report, you will not have an objective answer.

2. Accounting is important to secure loans

A recent financial report shows the position of your company. They are essential if you want to fund your small business with a loan.

For example, you want to apply for a loan through one of the major banks. You will need to provide, on average, three years of financial statements, plus one year’s cash flow projections. It’s almost impossible to send everything if you don’t have an accounting system.

3. You need accounting to get investors or sell your business

It’s possible that you don’t plan on prosecuting investors or selling your business right now. But it’s a good idea to leave your options open. The best way to do this is to implement a proper accounting system.

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