When we think of accounting, we think of those standard 9-5 accounting jobs. Still, the truth is that the profession's depth ranges far beyond whether your friend identifies as an accountant or an accounter. In this article, we will reveal the answers to some of society's most profound questions, such as the accountant definition, who invented accounting, the big four accounting firms, how much an accountant makes, and several other must-know facts to unravel the enigma of accounting.
According to Investopedia, accounting focuses on recording the financial transactions of a business by summarizing, analyzing, and reporting them to tax collection authorities, oversight agencies, and regulators. Accounting plays a pivotal role in the corporate world, often denominated as the language of business since it represents the flow of communication between the firm and its investors and creditors.
What do Accountants do?
How to Become an Accountant
The difference between bookkeepers and accountants is that bookkeepers are designated to rudimentary accounting responsibilities and functions. In contrast, accountants are more qualified, often Certified Public Accountants (CPA) or Certified Management Accountants (CMA).
When preparing financial statements, accountants will follow the standards and expectations laid out by the US's General Accepted Accounting Principles (GAAP) to establish consistency throughout the financial statements of each US-based company.
Tax accountants utilize the Internal Revenue Code (IRC) when filing federal tax returns, but, depending on the location of the company's headquarters are located in, tax accountants may also refer to the tax laws of their state or county.
Types of Accounting Roles
Managerial accounting is considered a supply-side nexus of accounting, in which accountants will generally create monthly or quarterly reports encompassing budgeting, forecasting, and financial analysis of the company's progress. These tools are crucial for the company's executives to optimize future decisions regarding the growth of the company.
Financial Accounting is generating financial statements based on all financial transactions within a certain period to produce a balance sheet, income statement, and cash flow statement. These financial statements play a crucial role in the affairs of publicly-traded companies because they are a determining factor for whether or not their company's investor sentiment will rise or fall.
Cost Accounting is about considering all the costs for creating the product that the company offers. However, the difference between cost and financial accounting is that money is perceived as a product component in cost accounting. In contrast, it is perceived as an indicator of economic performance in financial accounting.
Tax accountants are often seen as a more independent branch of the accounting tree because they will be operating under the rules set by the federal, state, and local governments. Tax accountants fulfill their role by ensuring that the company follows all necessary laws and regulations.
Importance of Accountants in Modern Society
Accounting is intrinsic to establishing clarity of the company's financial state so that the business managers, the board of directors, and the company executives can make well-informed, pragmatic decisions. Without accounting, it becomes easier for executives to make mistakes by promoting their less favorable products and miscalculating the potential costs of their labor, equipment, production, marketing, etc.
Financial statements are also products of accounting that are significant for a company's capacity to expand its enterprise because banks require financial statements as part of their process for loan applications. Additionally, investors often look at the financial statements to gauge the financial health of the company and its ability to expand and make a profit and provide meaningful returns to the investors. On top of that, most stock exchanges require public companies to publish periodic financial statements; otherwise, the company stands the risk of being de-listed and suffering from penalties and fines.
Accounting is also crucial for companies to keep track of the overall flow of money so that they can make sure to fulfill their financial obligations to shareholders and financial institutions. Additionally, it ensures that customers pay the total price of their services if the company provides trade credit (when a customer can not pay, the company offers credit for the customer to deliver within a particular timeline).
Modern World of Accounting
Largest Accounting Firms in the World
The "Big Four" is recognized as the largest accounting firms in the US: Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC), and Klynveld Peat Marwick Goerdeler (KPMG). With the prestige and fame of the Big Four, they are hired by most Fortune 500 companies to conduct audits. A 2018 CFA Institute Report found that the Big Four audited all the S&P 500 stock exchange companies. According to Investopedia, the Big Four provides an array of services that has allowed them to maintain their position as the top accounting firms in the country, including "audit, assurance, consulting, financial advisory, risk management, and tax compliance services. Each firm also assists with mergers, acquisitions, corporate restructurings, and forensic accounting." However, critics denounced the Big Four for their incompetence in uncovering prodigious frauds committed by their clients, like Enron and Worldcom, which independent forensic accounting experts divulged.
Conclusion
Ultimately, accountants play a pivotal role in fulfilling legal requirements, providing the necessary information for the company to qualify for loans and public investment, and evaluating the financial health and progress of the company so that company executives can plot the course for the future of the company.
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