Accounting is the recording and classifying of business transactions on a daily basis. It summarizes the financial transactions and interprets them so as to understand how the business is performing. It therefore aims to permanently record all of the payroll services dealings and to show how these combine to give a profit or loss.
The main objective of a business is to generate the maximum revenue with the minimum of expenditure. Using correct accounting methodology, the company is able to determine how much revenue was earned in a year, as compared to the previous year and therefore to determine if it is improving, or if its position in the market is worsening. With accurately maintained financial records, it can clearly see if it is achieving the goal of increasing sales, reducing expenses, and expanding the business.
An accurate method of accounting is also essential for any enterprise, for legal reasons. All businesses in Australia must periodically submit BAS (Business Activity Statements) to the Australian Tax Office. Penalties and fines may be issued if these forms are not submitted on time or in full. Keeping meticulous records allows these legislative requirements to be met with greater accuracy and with less time.
Accounting must not only take into account government legislative requirements, but must also be mindful of the interests of the investors, and the business owners and managers of the business.
Detailed accounting allows for the accurate understanding of net profit. It allows the trader to plan for the future. Further, if the business becomes insolvent, it makes its true position known, or if it is to be sold, a selling price is able to be set.
Business records are able to be maintained through various systems;
-Single Entry System-is known as imperfect accounting as it does not have checks of the accuracy of data, nor does it provide any safe guards against fraud. It records cash transactions, without any other information.
-Double Entry System-recognizes the two-fold nature of each transaction, and therefore fulfils all of the objectives of that system that accounting aims to do.
-Cash System-works on the assumption that there are not any credit transactions. It therefore records cash payments and receipts. Credit payments are not recorded until cleared.
Thus, bookkeeping and accounting maintain a record of receipts and expenditure, which gives the ability to evaluate and analyse a companys performance over time.
It is a complex area, and often very daunting for owners and managers who are not trained in accounting procedures. There are firms, however, which assist with this bookkeeping, providing accurate and effective accounting, and saving the time of staff members who can then use this saved time in the activities of the business. The areas of Accounts Receivable and Accounts Payable can be outsourced to accounting service providers, at a cost-effective rate. Further, payroll processing, trial balance sheet preparation, financial statements preparation, business reconciliation and General Ledger preparation can also be outsourced if required, with the security of knowing that the work will be completed effectively and fully.