Accounting has been defined by professor of accounting at the University of Michigan William A Paton as having one fundamental role: “facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data, and 2) communicating the results of this process to interested parties.”
For instance, accounting professionals from a company regularly examine the loss and profit for the month, quarter, or even fiscal year. They then publish the results in a report of loss and profits, also known as”an income statement. The statements contain aspects like accounts receivable (what’s due to the company) and account payable (what the business is owed). It also gets complicated when it comes to topics such as retained earnings and acceleration of depreciation. This can be a problem at the top levels of accounting and within the company.
A large portion of accounting is also concerned with the basics of bookkeeping. This process tracks every transaction, every bill that is paid, every dime owed, every cent and dollar spent, and the total.
However, the shareholders of the company, who could be individuals or millions of shareholders, are most concerned about the summary of these transactions in the financial statements. The financial statement is a summary of a company’s assets. The valuation of an asset measures the amount it was worth when it was first purchased. A financial report also documents which sources these assets are. Certain assets are loans that must be repaid. Profits are another asset of the company.
In double-entry bookkeeping, liabilities are also compiled. A business wants to display a larger amount of assets to cover the liability and also show the profit. The control of these two aspects is the core of accounting.
There’s a method for accomplishing this, however not every business or person could devise their system for accounting. The end outcome would be chaos!