Accounting Practices
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This paper outlines the basics of four key accounting principles: bookkeeping, financial accounting, managerial accounting, and tax accounting, highlighting their interconnected roles within an organization. Each principle builds upon the previous one, contributing to the overall financial health and strategic goals of the organization, with varying educational and professional requirements. The conclusion emphasizes that these accounting practices work collectively to promote an organization's financial success and future forecasting.
Accounting Practices
- 1. Running head: ACCOUNTING PRACTICES Accounting Principles Kimberly King-‐Martin Pacific Oaks College
- 2. ACCOUNTING PRACTICES 2 Abstract This paper will discuss the basics of four different accounting principles: Bookkeeping, Financial Accounting, Managerial Accounting, and Tax Accounting. This discussion will show the tiered cycle of accounting with in an organization. This translates to the way each principle builds off the previous and supports the next tier all while cycling back again. This paper will also state the basics in the function of each principle and the roles needed to execute their success.
- 3. ACCOUNTING PRACTICES 3 Accounting Practices Accounting principles are performed and examined by individuals or teams that handle all relevant financial reporting within an organization. There are tiers regarding the role and responsibility that one has in accounting practices. This paper will discuss each of these tiers and the responsibilities that apply to each. Although, seemingly separate, all of these accounting practices work together to manage the business needs for today and ensure an organization’s future success (see graph). Bookkeeping According to the United States Bureau of Labor Statistics (2015), the role of bookkeeping requires maintaining the general ledger of an organization. An individual in the bookkeeping role is referred to as the bookkeeper. In this role one is responsible for recording all debits and credits that an organization incurs. This role usually involves verifying receipts to keep track of overdue accounts. Also, it encourages production of invoices and bank deposits that reflect basic financial standing. To communicate the basic financial health of an organization, bookkeeping obliges an individual to create the financial statements needed and prepare reports for supervisors and managers. In it’s simplest description it is cash flow management. Author Scot (2010) notes that, “bookkeeping has become an antiquated term because it implies by definition that a physical set of books are being maintained” (p. 53). Bookkeeping Financial Accounting Managerial Accounting Tax Accounting
- 4. ACCOUNTING PRACTICES 4 Technology has changed the literal meaning of the role. This title is most used within smaller organizations and not-for-profits more than larger corporate institutions. The role does not require much or any formal education and/or professional experience. Usually, it is seen as an entry-level position within accounting practices’ roles. Financial Accounting Financial Accounting keeps track of the financial transactions beyond basic bookkeeping practices. This particular practice emphasizes money to gage economic performance rather than as a factor of production. An individual or teams of people that have at least a bachelor’s degree mostly fill this role. One may also pursue a certificate to further their career. “For example, many accountants become a Certified Public Accountants (CPAs)” states the United States Bureau of Labor Statistics (2015). Focused on balance sheet and income statement to report fiscal tracking for an organization. The main purpose of this accounting practice is to assess the value of the organization. The financial accounting tier is an important entity regarding the realistic numbers, financial health. Another important responsibility of financial accounting is to report to external parties, such as, investors, shareholders, and any other party of investment. Working closely with managerial accounting, financial accounting enables managers to take fiscal reports and strategize for future success. Managerial Accounting Managerial accounting is used to analyze and interpret financial statements and operational reports that are provided through the financial reporters. Also known as Cost Accounting, it used to factor internal production for management to make decisions. This tier is responsible for strategizing future market and operational costs. In turn, executives
- 5. ACCOUNTING PRACTICES 5 such as Chief Operational Officers (COO), Chief Financial Officers (CFO), and Chief Executive Officers (CEO) usually hold positions in managerial accounting. A higher level of both education and professional experience are required to enable managerial accounting’s success. The analysis and strategy can be a culmination of many factors such as the positive and negative effects of business growth in relation to the stock market. Scapens (2006) research of the evolution of managerial accounting for the last 35 years finds that the latest trends include “a variety of research methods… including surveys, fieldwork, and case studies… quantitative work and also some analytical work” (p.8). Most importantly these methods are used to enable indispensible communication between the managerial and financial accounting departments within an organization. Scapens (2006) has found that old management accounting practices tended to be stagnant in a general treatment that applied to most organizations. Now he finds that organizations are becoming more fluid in terms of considering the “wider social and ethical issues” (p. 12) that can affect the organizations growth strategy and success. Tax Accounting Tax accounting is an accounting practice that involves an organization’s relevant tax information rather than financial forecasts. Tax accounting is regulated by the United States Internal Revenue Service (IRS) and governed by the U.S. Code: Title 26 - Internal Revenue Code (IRC). This requires knowledge and/or understanding of United States Tax Law. In cases of an organization that has entities overseas it may be necessary to also have knowledge and/or understanding of International Tax Laws. Due to the complex nature of tax accounting a bachelor’s degree or graduate degree in accounting is essential
- 6. ACCOUNTING PRACTICES 6 to this principle. An individual in this role is generally a Certified Financial Planner (CFP) and Certified Public Accountant (CPA). Tax accounting principles involve many if not all aspects of a business including labor, revenues, investments, insurance, production and everything in between. Most importantly, this practice’s main function is to keep an organization within the rules and regulations set forth by government entities. Conclusion The aforementioned accounting practices all work collectively as separate entities while simultaneously supporting the success of the next tier. This system (see graph embedded in the introduction) is a continued cycle which helps promote the financial success of any organization, by using present information and past outcomes to forecast future achievements.
- 7. ACCOUNTING PRACTICES 7 References Bookkeeping, Accounting, and Auditing Clerks : Occupational Outlook Handbook : U.S. Bureau of Labor Statistics. (2015, December 17). Retrieved July 10, 2016, from http://www.bls.gov/ooh/office-and-administrative-support/mobile/bookkeeping- accounting-and-auditing-clerks.htm Home : Occupational Outlook Handbook: : U.S. Bureau of Labor Statistics. (2015, December 17). Retrieved July 16, 2016, from http://www.bls.gov/oco/ Scapens, R. W. (2006). Understanding management accounting practices: A personal journey. The British Accounting Review, 38(1), 1-30. doi:10.1016/j.bar.2005.10.002 Scot, L. (2010). The simplified guide to not-for-profit accounting, formation and reporting. Hoboken, NJ: John Wiley & Sons. U.S. Code: Title 26 - INTERNAL REVENUE CODE. (n.d.). Retrieved July 17, 2016, from https://www.law.cornell.edu/uscode/text/26