1.1Understanding the Function of Accounting in Business
Explain specialized accounting terminology used in the accounting business with the application of QuickBooks accounting software.
Create and set up a new service business using QuickBooks, while incorporating knowledge of the different types of accounts properly classified with appropriate account numbers.
Integrate the concept behind the fundamental accounting equation with the generally accepted accounting principles (GAAP) to produce the four different financial statements.
Apply knowledge about the accounts used for a service business to produce the chart of accounts using QuickBooks.
Understanding the Function of Accounting in Business
Accounting is an art and science of analyzing, classifying, recording and summarizing transactions and events in a significant manner, expressed in terms of money, in the preparation of the financial statements and interpreting their results.
The function of accounting is to identify and measure the assets or resources held by the business; to identify and reflect the claims against or called liabilities and the interest or equity in the business; to measure the changes in those assets, liabilities, and equity and assign these changes to specific periods of time; and to communicate the economic and financial information to allow informed judgments and decisions by the diverse users of these significant reports.
The objective of accounting is to provide significant information necessary in making economic decisions and professional judgments. To achieve this objective, Financial Accounting Standards Board (FASB) formulated the Generally Accepted Accounting Principles (GAAP) in the development of the guidelines in the accounting process. These generally accepted accounting principles are the basis of presenting financial statements and are uniformly and universally accepted to project the financial standing or position of a business as of any given date. Securities and Exchange Commission (SEC) monitors the adherence to these principles as publicly traded companies submit their financial reports. Some of these principles and concepts will be briefly discussed in each chapter as it develops.
Because of the heavy reliance placed on these significant reports, developments in accounting principles and practices have been most useful to owners, managers, creditors, financial institutions, government agencies and prospective investors.
As business entities grow, and with the increase of the volume of transactions to be recorded, the need for computerized accounting systems have been structured to promote operational efficiency and safeguard the integrity and reliability of accounting information through proper internal control. The principle of reliability means that the accounting information is presented in accordance with the generally accepted accounting principles (GAAP) and ensures the efficiency in the performance of the accounting function. The computerized accounting system facilitates the accuracy of posting to the ledgers and subsidiary ledgers thereby eliminating mathematical errors and decreasing valuable time using manual accounting system. The computerized accounting software, QuickBooks Pro, enhances the preparation of the financial statements for a specified period of time, are structured to meet the financial reporting requirements of FASB. Though the output is only as good as the input, care must be considered in recording the daily entries in the computer.
The different kinds of business organization are: sole proprietorship, partnership, and corporation. The use of QuickBooks Pro will distinguish these business entities only through the Equity section. At the initial set-up of a business entity, the correct identification of the kind of business organization is of great importance. Business entities are also classified as service, merchandising, or manufacturing kinds of businesses. QuickBooks Pro will allow you to choose from the list of Industry designed with specific accounts or allow you to structure your own chart of accounts for your kind of business. This practice set will guide you to do both.