The Role of Professional Accountants and Bookkeepers - Essay Example

?Finance and Accounting Define Accounting and Bookkeeping and compare and contrast the role of Professional Accountants and Bookkeepers. IntroductionOne can track the birth of accountancy from the earlier days of human. The urge to maintain records came up when there was a need for maintaining the records of values of the agricultural products along with their quantities. Luca Pocioli was regarded as the father of accounting. In the earlier days his book “Summa on Arithmetic Geometry, Proportions and Proportionality” was followed by every school and were taught to the children of the merchants. In the book, double entry system of accounting was also described. The book also described the use of journals and ledgers. Accountancy contained two parts bookkeeping and accounting. Both became useful to the merchants and the professional from time to time. It plays an important function in recording the financial transaction of an organization. It provides information to a whole range of users. The essay elaborates basics of accountancy and the use of accountancy in different areas of management by the accountants and the bookkeepers (Gazely and Lambert, 2006) Accounting and Bookkeeping Accountancy does the task of maintaining records and it also involves in preparation of financial reports for a particular business. It also involves in auditing those reports. It is concerned with the knowledge, practices and the principles of accounting for meeting the general needs of a running business. According to Kohler “Accountancy refers to the entire body of the theory and practices of accounting” (A. Goyal and M. Goyal, 2009). The term accountancy can be divided into two parts: Accounting and Bookkeeping. Accounting Accounting basically deals with the provision or measurement of assurance of the financial information that are used by a number of users such as the lenders, investors, managers and the decision makers of a particular organization (Fitzpatrick, 2010). According to American Accounting Association it is “a process of identifying, measuring and communicating information to permit judgment and decisions by the users” (Khan and Jain, 2007). It also measures the different economic activities which are responsible for affecting both the inflow and outflow of the resources of the economy. It serves as a language to the business as it communicates its results to the business (Hugh and Hobbs, 2005). There are certain characteristics of accounting which are as follows: Accounting concerns of only the financial transactions and are expressed in terms of money. The information which cannot be expressed in term of money cannot be included in the books of accounts. After the identification of the financial information these are recorded in the books of accounts. Journal is known as the primary book of accounts in which all the information is recorded at first. When information are vast then the book of accounts is sub-divided into a number of various books such as Sales book, Purchase Book, Sales Return Books, Cash Book and many more (Stittle and Wearing, 2008) After recording of the financial data, they are classified into different groups of data which are of same nature. The book in which these are recorded are known as the Ledger. After classifying the data, they are summarized and presented in a manner that is understood by a layman also. This process is concerned with the preparation of Profit and loss account, trial balance and balance sheet. The information thus got from the summarization of the data is to be analysed to get a result. Ratio analysis is a very common tool for analysis and thus it helps both the management and the external users to take their decisions. The result thus communicates some information to the interested party and they can take an appropriate decision (Warren, 2009). There are different types of accounting which are as follows: Financial accounting concentrates on only those transactions that have already occurred in the past. The main aim of this type of accounting is to record the transactions and keep a track of the profit or loss of the business. It also identifies the financial position of the business. In corporate accounting the trend if making cash flow statement and fund flow statement is also observed which includes in the part of financial accounting. Cost accounting deals with the cost control of the business and also cost ascertainment of the business. The main aim of the cost accounting is top deal with the cost per unit and the total cost of the goods and the services provided by the business (Gazely, 2006). Management accounting is a special type of accounting which is used by the management for decision making. Information from financial accounting and cost accounting is not adequate to take any decision pertaining to an investment in a vast project. The main aim of management accounting is that it helps the management to take smooth and orderly decisions for any project they are undertaking or any investing they are doing. There are many objectives of accounting. Few important objectives are s follows: To keep orderly records of the business and avoid omission of business transactions which indicates fraud. Accounting keeps track of the financial condition of the business whether it is facing profit or loss. In spite of having good financial profit the company faces liquidity crunch this can be identified by preparing the cash flow statement (Maynard, 2013). The advantages of accounting are the following: It gives systematic record of the daily transactions. It also provides information which is helpful for the management and the external users. It enables the management to do comparative study of the cash flow statement of the one period with that of another. The taxation authorities rely on this information if they are maintained according to the GAAP (Generally Accepted Accounting Principles). It also helps to determine the sales of the business (Lucy, 2003). The limitations of accounting are as follows: Accounting principle explains that it follows only one principle for transactions but there exits more than one principle. They are prepared on the historical cost and thus the effect of changes in the price level is not obtained. The financial accounting does not take into the change in nature of business. Accounting is affected by window dressing which means manipulation of data to show a different picture of the statements. These are regarded as fraud and should be avoided. Book-keeping The word book-keeping is made up of two different words: “book” and “keeping”. It means “the art of keeping books of accounts in a regular and systematic manner” (Lucy, 2003). The financial transactions that are undertaken by the business concern or the individual are recorded in a systematic way. Book-keeping is concerned with the recording of what is sold and what is bought, how much in left and how much is going out. It is concerned - with two significant steps: 1) Recoding of all the transactions of the business in the book called the journal. 2) Posting all the transaction from the journal to the ledger and trail balance and then they are analysed to see the affect of the transactions. The main objective of book-keeping is the following: It helps to identify the status of the business over a period of time. The result of the analysis of the status of the business can be profit or loss. It assists to know the financial ability of the business at a particular time of the year. It assists the management to prepare a permanent reference for the future of the company. The advantages of bookkeeping are the following: It helps the management in evaluating the different proposals so that the business makes maximum profit. It helps the investors to identify the financial position of the firm. Accounting Vs Bookkeeping Scope: Bookkeeping only includes recording and classification of financial transactions but accounting includes recording, classification and also summarization of the financial transactions along with its analysis. Nature of Job: Bookkeeping jobs are routine in nature and are clerical jobs. Whereas accounting involves are analytical jobs. Stages involved: Book-keeping is the initial stage whereas accounting is the secondary stage. Level of knowledge: Book-keeping needs just basic knowledge it can be handled by limited knowledge person. Accounting needs sufficient knowledge as it is divided into several divisions such as financial accounting, management accounting etc. Objective: Book-keeping aims to maintain the records of the daily transactions taking place whereas the accounting aims at measuring the profit and loss. Managerial decisions: Book-keeping is not at all helpful in taking managerial decisions whereas accounting g is very much helpful in undertaking managerial decisions. Personal judgement; Book-keeping is not affected by the personal judgement as it is made according to the accounting principles. However accounting is very much affected by the personal judgements because of the analysis and the interpretation of the results are done by the individual who is making a judgement. Role of accountants in profession and in business In today’s competitive and uncertain world where companies fight to acquire the larger base of customers, the accountants’ have a vital role to play in that commercial success. They have the knowledge and the skills which gives the organization a backbone for competitive advantage. The accountant researches the files and the previous accounts to evaluate and review the information thus got form the past details. They prepare comparative analysis of these historical data from time to time and thus forecast the expenditure and the revenue of the organisation. They are assigned to make the journal and the ledger and also responsible for maintaining it from time to time for getting the appropriate values. They are also responsible for the reconciliation of accounts and also reviewing of the contracts that are made by the company whether they are made according to the rules and regulation of the GAAP. They prepare budget documents and analyses those budgets to forecast the future budget. They check the efficiency of the financial system by maintaining and evaluating the financial information of the system. Personal and professional characteristics of accountants Accountants play a vital role in the organisation for assisting the clients with the financial matters and those are kept confidential in the organisation. Accounting skill and education are the basic need of qualification for an accountant. There are many additional characteristics also. They should have the expertise in various aspects of the accounting system. They are required to take training in order to cultivate their skills and thus provide their best services to their customers. Need for professionalism Accountants are very professional and they maintain their integrity. These values which they possess thus have made them professional. They follow their internals rules and they have a good quality of adapting to the changing world. They uphold their professional standards within the accounting disciplines and support in strategic decisions of the organisation (Maher, 2012). Need for ethics Ethics is very important for the accountants because history has proved that accounting reflects the moral values of the organisation in which it is exercised. It is important for the accountants because accounting needs ethical skill and knowledge. Ethics builds personal skills to take the right decisions. Accountants have the capability to handle peer pressure ethically. They do not focus on the short term hurdles for maintaining their revenue growth. Instead they believe in customer satisfaction and thus make long term plan to satisfy them. Ethical standards make the accountants strong from inside which forces them to take the right decision always (Fridson and Alvarez, 2011). Conclusion Accounting and bookkeeping are the essential tools of organisation. It not only helps the management of the organisation to take managerial decision but it also assists the investors, creditors etc. to make investing decisions. The accountants are responsible for preparing the detailed accounting system of the organisation and thus they play a very important role in the organisation. They not only follow the accounting principles in preparing accounts for the organisation but it also follows ethical standards which does not allow to undertake any fraudulent activity. Reference List Fitzpatrick, K., 2010. E-Z Bookkeeping. New York: Barron’s Educational Series. Fridson, M. and Alvarez, F., 2011. Financial statement analysis. New Jersey: John Wiley & Sons. Gazely, A. and Lambert, M., 2006. Management accounting. London: Sage Publications Ltd. Goyal, A. and Goyal, M., 2009. Accounting for managers. New Delhi: V.K. Enterprises. Hugh, C. and Hobbs, D., 2005. Management accounting: Principles and application. London: Sage Publication. Khan, M. and Jain, P., 2007. Management accounting. New Delhi: Tata McGraw-Hill Publishing Company Limited. Lucy, T., 2003. Management accounting. New York: Continuum. Maher, M., 2012. Managerial accounting. Connecticut: Cengage Learning. Maynard, J., 2013. Financial accounting, reporting & analysis. Oxford: Oxford University Press. Stittle, J. and Wearing, R., 2008. Financial accounting. London: Sage Publication. Warren, C., 2009. Managerial accounting. Connecticut: Cengage Learning. Read More