Functions of Accounting

Accounting is a broad and varied profession. When you study accounting, you’ll find that you can apply your education to a wide range of possible functions within a business. You can specialize yourself to serve your employer, if not your own business, in a variety of ways. You can also work in any industry and many departments within each of them. Government work is also a common employment choice for accountants.

Some accountants make their careers in the financial sector. They apply their ability to analyze corporate health to deals that can include initial public offerings, mergers, and acquisitions. These accountants don’t often engage in functions such as audits, but their knowledge and expertise enable them to assess an auditor’s conclusions with an educated eye.

Other accountants perform more managerial functions. If you move your career in this direction, you will be tasked with projects dealing with budgeting, maximizing efficiency, checking for errors, or even theft in the system. Managerial accountants might also work in information technology, where they audit an organization’s technological systems in search of new ways to optimize workflow or overall efficiency.

Two Forms of Accounting

Managerial

Managerial accountants are an integral part of a business’ daily operations. They seek to find new ways to maximize efficiency, write budgets for new projects, and even perform audits on various systems. One key function of a managerial accountant is cost control, which can mean anything from finding cheaper toner for the copiers to shaving minutes from worker’s hours to save the company thousands of dollars.

They also work to evaluate employee performance to ensure that the organization receives the most productivity possible from the payroll expenditures. When individuals or departments are found to be too inefficient, accountants might seek ways to improve workforce output. This could entail upgrading technologies, discovering new workflow methods to improve how work is actually done, or even outsourcing labor to other sources.

Managerial accountants might work for a single organization and continually seek to improve its functioning and efficiency. They might also work as consultants for organizations all over the nation and world. In each case, these accountants need to work closely with department heads in a range of areas. They might need to assess efficiency in a manufacturing facility or discern how to best upgrade IT functions in a small company.

Managerial accountants frequently will focus on a specific industry where they will become experts and forge a successful career. This is important because each industry has an individual set of issues to work with. Healthcare, for instance, must abide by certain regulations governing patient care. On the other hand, the automotive industry deals with a whole different type of regulation.

Here is a brief list of other managerial functions accountants perform regularly:

  • Budgeting – both for individual projects and the company as a whole
  • Cost Controls – determine company policy for areas such as payroll or accounts payable
  • Employee Evaluations – analyze the workforce to see where improvements will result in savings
  • Fraud Control – investigate shortages to ensure that neither outside theft nor inside embezzlement is occurring
  • Error Control – accountants analyze how and why errors happen to help determine how to avoid them in the future

Financial

Financial accounting is the other main function of an accountant. This set of functions is also called stewardship accounting. This might be what most people think of when they think of a staff accountant; a professional tasked with aggregating and analyzing the hard numbers.

Stewardship accounting is always concerned with keeping accurate financial records. They need to ensure that every penny spent or earned is recorded accurately. That is, it’s vital to know how certain transactions can be accounted for on a tax return.

In a publicly traded company, this sort of classification can be incredibly helpful when putting together quarterly and year-end documentation. Shareholders need to have an accurate accounting of the company’s finances and also a fair and objective description of those figures. Sometimes, a company will have one-time expenditures that will dramatically impact overall earnings or profits. On the other hand, shareholders need to understand how a sell-off of assets can result in a revenue spike, which is unlikely to repeat.

Financial accountants might also analyze the company’s overall fiscal health with regards to multiple factors. They can take into account external events that impact financial health including taxation, government regulations, or even weather events. In some cases, financial accountants might make the seemingly counter-productive recommendation that a company take on more debt. However, when seen in a broader perspective, that debt can offset profits and thus help the organization avoid taxation.

A financial accountant’s duties can include, but are not limited to:

  • Recording financial transactions
  • Describing financial transactions
  • Translating financial data for executives or shareholders
  • Calculating the actual bottom line for a company
  • Preparing reporting documents such as the Annual Report

Functions Within a Business

Accounts Payable (Money Out)

Accounts payable is the part of every company that handles expenses. After all, every commercial enterprise must purchase things such as raw materials, office equipment, industrial equipment, and more. Furthermore, organizations need to pay vendors of certain services.

An accountant can set the terms of these payments so that the company absorbs the expenditures in the best way, and at the best times. For instance, vendors might not receive payment for a set time after their work is complete, thus enabling the organization time to receive payments from a client before paying the vendors. Delayed payments might also enable the organization time to accrue interest on funds.

Accounts Receivable (Money In)

For any business to be successful, its accounts receivable department should bring in more money than the accounts payable department spends. The accounts receivable department is ultimately responsible for the organization’s revenues. They are on the front lines of profit-making.

Thus, an accountant in accounts receivable is responsible for ensuring that all accounts are paid in full. The accountants may be in charge of ensuring that all outgoing invoices are as accurate and detailed as possible. They also need to be sure to collect on every outgoing bill. In the case of vendors, it’s vital to keep track of each vendor contract because some payers will negotiate individual terms for payment such as a delayed lump sum or an interest-bearing payment plan.

Ascertain Results/Income – Budget Preparation

Budgets are vital for planning out a business’ overall, future success. Accountants need to diligently consider every future expense and then justify that expense by showing its long-term value in terms of profits. Budgets can be long-term or cover a shorter time frame.

For instance, some budgeting is for certain projects that a company or department wishes to complete. Some projects involving research and development need to find the most efficient ways to research a product and then demonstrate the long-term revenues that can result from success. It’s also vital to show how expenses will be absorbed in the meantime.

Since companies attract investments by demonstrating the long-term value of current expenditures, budgeting is a vital part of the equation. When a project can come to completion both on-time and within budgetary constraints, it’s more likely that investors will receive gains. These same investors will thus be more likely to invest in future ventures with the same team.

Payroll

Payroll is often one of a company’s largest expenditures. After all, every business relies on its human capital before any revenues are realized. Accountants constantly scrutinize payroll expenses to determine how to maximize the return on their investment in labor. They might even set standards for hiring and compensation. A new hire with a lot of experience and success may be deemed worthy of a much higher salary than an untested worker fresh from college.

Payroll also includes issues related to travel expenses, benefits packages, and severance payments. Accountants strive to ensure that everyone is paid equitably so that the company can attract and retain top talent.

Financial Report Preparation – Management Decisions

Financial reporting is a vital part of any business. If you work for a publicly traded organization, your quarterly and annual reporting documents must include an Income Statement, Balance Sheet, and Cash Flow Statement. These reports are all subject to scrutiny by both shareholders and the Securities and Exchange Commission, a governmental regulatory body. These documents are required by law to be filed in a timely fashion and to reflect the actual condition of the company. Private companies also need these reporting documents to present to private equity stakeholders as well as internal executives.

The Income statement demonstrates the company’s financial health. It is essentially the result of comparing total revenues, plus all gains, minus total expenses and losses. This statement can show how non-operating revenues, such as outside investing, measures up against operating revenues.

A company’s Balance Sheet is a statement of a company’s assets. This is the sum of all the company’s liabilities plus its equity or retained earnings. A balance sheet is a snapshot of a company’s health and does not offer insights about long-term growth. However, when accountants compare Balance Sheets from previous periods, a pattern can emerge.

Finally, a Cash Flow Statement demonstrates for investors and executives how much cash is moving through a company during a period of time. This financial analysis shows how well a company holds its cash and what percentage of the cash flow results in profits.

Analysis and Advice

Analysis and advice results from scrutinizing a company’s financial documentation. This can be a crucial part of an accountant’s career. In the case of a larger organization, a Chief Financial Officer might receive all of the relevant data and then spend a great deal of time preparing a presentation for the Board of Directors or other stakeholders. Their report should help the audience understand the true meaning of the numbers, so that they can make decisions for the company’s future.

Outside consulting accountants can likewise provide analysis and insights from a vantage point that is difficult for the company’s internal accountants. They might advise a company to undergo a restructuring, eliminate certain processes, or otherwise improve efficiency.

Financial Data Management

Data management used to be comprised of paper ledgers that were stored in fireproof safes. These days, accountants need to ensure that their financial data is stored and managed in ways that are both safe and reliable. For this reason, contemporary accountants can specialize in information technology so that they are best able to keep tabs on how and where the information is stored. Further, they can also ensure that the data is safe and not compromised by unauthorized individuals.

Regulatory and Reporting Compliance

Every company in the United States is subject to governmental regulation. Thus, accountants need to be well-versed in governmental regulations so that their operations remain in compliance with current statutes. For instance, a publicly traded company must meet certain transparency standards for its reporting. The Securities and Exchange Commission (SEC) is responsible for enforcing these regulations so that average investors can make sound investing decisions.

Companies may also have their own standards. Often, these standards reflect the government’s rules but are often stricter. Accountants who hold themselves to these higher standards find that their organizations have less legal exposure and possibly higher success rates in the long-term.

Security

Accountants are responsible for every aspect of a company’s financial data. They need to provide accurate numbers and sound analysis to all relevant stakeholders and then ensure the safety and security of that data. These days, ensuring that safety of data may require a deep knowledge of cyber security and information technology. Companies might hire outside consultants to help with this security or hire accountants who have an IT specialty.

Financial Controls

A financial controller is an accounting executive who applies their years of experience in maintaining and controlling a company’s budget. They might also be tasked with ensuring that financial reporting is accurate, truthful, and prepared to meet regulatory stipulations. The controller will also file all required documents to the SEC, including the quarterly, annual, and proxy statements. Sometimes a controller heads up the hiring of accounting professionals and meeting all legal requirements pertaining to taxation and licenses.

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