Accounting for companies

Posted by AkmGlobal on March 3rd, 2017

ACCOUNTING basically means the recording of financial transactions of an entity in a systematic and logical manner so as to evaluate its performance during the year.

Every entity needs to maintain their accounts in an organized way so as to keep a track of their daily transactions and an entity can grow only if it is able to measure its operations.

Accounting for companies is like profits for entrepreneur without which survival is very difficult. Every company needs to earn profit to grow and expand in the market and profit can only be ascertained by preparing financial statements. Accounting is the support system of the companies as it provides all the relevant information required by all the stakeholders and other users. Accounting also acts as a medium to communicate with the public i.e. ultimate investors.

Companies to maintain their accounts appoint various professionals like CHARTERED ACCOUNTANTS, COST ACCOUNTANTs, etc who prepares financial statements as per the Accounting standards, companies Act and other relevant rules and regulations. For example, every company is required to prepare Balance sheet, profit and loss account, Notes to accounts, director report in their Statutory Accounts.

Since the Accounts are prepared based on Generally Accepted Accounting Principles, it acts as a defensive guard while Audit is conducted. Reliable accounting information will solve all the problems of the auditors.

Every company is required to maintain Books of Accounts under the Companies act 2013, so Accounting for companies is mandatory as well as their requirement. In case, the company does not maintain Books of Accounts then it attracts a penalty of minimum Rs. Fifty thousand which can extend to Rs. five lakh and imprisonment which can extend to 1 year.

Since operations of a company are divided into various departments like finance department, audit department, tax department so to evaluate the performance of all these departments, Accounting has been divided into various fields:

1. Financial Accounting: it focuses on evaluating the organizations financial information by preparing Balance sheet, Profit and Loss account, Notes to Accounts etc as per generally accepted accounting principles and communicating it to the users.

2. Management Accounting: its main objective is to help the management in decision making process by providing all the relevant information. Identifying, Measuring and Analysis of the information are the basic tools used.

3. Auditing: Auditing is an examination of the financial information with a view to express an opinion. One of the objectives of auditing is to find out the areas where GAAP and other rules and regulations have not been followed.

4. Tax accounting: It examines the financial statement and calculates the tax payment to be made and returns to be filled.