What is basic accounting (principles, jobs and education)
By Indeed Editorial Team
Updated 23 October 2022 | Published 30 November 2021
Updated 23 October 2022
Published 30 November 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Accounting is vital for the success and stability of businesses. Basic accountants typically work for corporations, investors and tax agencies. If you're interested in becoming an accountant, having a good understanding of what accounting is and what basic accountants do is the first step towards accomplishing your goal. In this article, we discuss what basic accounting is, what accountants do, generally accepted accounting principles, the accounting cycle, jobs in accounting, entry requirements and education options.
What is basic accounting?
Basic accounting is the process of recording and managing a company's financial transactions. This work involves analysing, summarising and reporting transactions, payments and expenditures to regulators, oversight agencies and tax collection entities. Accountants are also responsible for filing and storing this information for future use.
Basic accounting is a key function in all business types. Accounting helps keep track of financial flows, determine the success of products and services and analyse company growth. It also allows for proper tax payment and reporting for government agencies, stakeholders and potential investors. Businesses can't grow without solid accounting principles in place.
What do accountants do?
Some of the main tasks that basic accountants take on can include:
Record-keeping: Accountants set up accounts to record financial information. Accounts typically include assets, liabilities, equity, expenses and revenue.
Transactions: Accountants record information about transactions, including sales, purchases, receipts and employee compensation.
Reporting: At the end of a fiscal year, accountants report overall financial findings in three financial statements. These statements include an income statement for all the company's revenues and expenses, a balance sheet to provide information about the company's assets, liabilities and equity and a statement of cash flows to show the uses and sources of cash for the past reporting period.
Generally Accepted Accounting Principles (GAAP)
GAAP, or generally accepted accounting principles, is a set of guidelines all accountants apply to their practices. This set of guidelines sets the standards for recording and reporting financial information. This consistency across the industry allows for ease of access and comprehension for financial stakeholders and interest groups such as investors, analysts and tax collection agencies. There are five fundamental accounting principles, which include:
Revenue recognition principle: This principle ensures accountants report revenue in a company's income statement. Revenue is the gross inflow of cash, receivables and other financial inflows from sales, services rendered and use of company resources.
Historical cost principle: This principle states the requirement to complete an asset recording at the price paid to acquire it, versus at its inherent value. This cost becomes the basis for accounts during all future accounting cycles.
Matching principle: The matching principle states that the accounting matches expenses incurred with revenues for one period. This is an accrual concept and disregards the timing and the amount of actual cash flow during an accounting period, but accountants can make adjustments as a way of ensuring accuracy later on in the accounting cycle.
Full disclosure principle: This principle regards financial statements and their ability to convey versus conceal information. Acceptable financial statements report all relevant information accurately, which often requires the inclusion of attached appending notes.
Objectivity principle: The objectivity principle states that accounting data is definite, verifiable and free from any personal bias of the accountant or any other stakeholder parties. This is in line with the full disclosure principle and requires evidence for every single recorded transaction on the ledger.
9 steps of the accounting cycle
The accounting cycle is a nine-step process of receiving, recording, sorting and reporting a company's financial transactions. Accounts follow this cycle to ensure that prepared information is an accurate, fair and honest reflection of business operations, costs and profits. This is a cycle rather than a process, as it moves seamlessly from one fiscal period to the next. Accountants now use various types of technology to help them complete these cycles. The accounting cycle consists of the following nine steps:
The first step in this cycle is a company's transactions. Transactions consist of sales, purchase of assets, returns, debt collection and all other financial activities related to the business. This step doesn't require the accountant to act, but rather begins the process for the accountant to become involved in step two.
2. Journal entries
Journal entries consist of stored data about financial transactions. When a transaction happens, accountants store this information in journals, spreadsheets or other software applications. This information becomes useful during auditing processes.
3. Posting from the journal to the general ledger
After completing journal entries, accountants post information from the journal entries to the general ledger. The general ledger is a collection of all the account information an accountant requires when preparing the company's final financial statements at the end of the fiscal year. The ledger contains sections for different data, including expenses, revenues, equity, liabilities and assets.
4. Trial balance
A trial balance is a report of every ledger's account balance. Accountants generate this report at the end of every reporting period. The trial balance ensures entries in the bookkeeping system are mathematically sound.
5. Adjusting entries
Accountants make adjustments to accounts for deferrals and accruals that affect the final balances of accounts on the general ledger. These adjustments are to ensure that reported results are consistent with the real financial position of the company. This is an important step leading up to the final financial statements.
6. Adjusted trial balance
After accountants add adjusted entries, next comes the adjusted trial balance. This ensures debits and credits match after the accountant finishes adjustments. This then becomes the most accurate version of the company's financial transactions.
7. Financial statements
The financial statements include the cash statement, income statement and balance sheet. Accountants write the financial statements based on information from the adjusted trial balance. These documents show the financial condition of the company and its cash flows.
8. Closing entries
The accountant now creates permanent accounts to store the final financial data. This step includes closing out the temporary accounts such as expenses, revenues and dividends by reducing them to zero. This is in preparation for the next fiscal period's reporting cycle.
9. Post-closing trial balance
This is the final step in the accounting cycle. The accountant checks that debits and credits match. They also check that the trial balance only includes permanent accounts and verifies the reduction of all temporary accounts to zero. This step is essentially the accountant double-checking their work before the cycle returns to step one.
Jobs in accounting
There are a number of possible career paths that involve basic accounting, which include:
accounts payable specialist
accounts receivable clerk
financial reporting manager
certified public accountants
Basic accountants' job outlook
Demand for accountants is high, as businesses require a competent accountant or accounting team to ensure their financial affairs are in order. This is a profession that continually sees growth and new opportunities are typically abundant in this field. Its average growth rate tends to be slightly higher than that of other professions.
It's important to note that some of the basic tasks associated with accounting are now outsourcing to automated technology. This does not mean accountants are going to become obsolete. Instead, the scope of the job is likely to change from that of data entry to that of an advisory or consultancy role. Some companies may also still prefer to employ accountants for data entry purposes rather than use technology if this method has proven effective.
Related: Administrative accountant CV skills
Entry requirements for basic accounting
The exact entry requirements for this field depend on your specific career path. Earning some level of higher education in the accounting field is likely to be a base requirement. Many positions may also require that you pass certain tests. The minimum level of qualification is usually an Association of Accounting Technicians (AAT) qualification. Requirements can also include qualifications from:
Chartered status (ACA) from The Institute of Chartered Accountants in England and Wales (ICAEW)
Accounting education options
Education paths for accounting may vary based on your desired role, but the most common options include:
Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed.
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