Accounting is the professional activity of an accountant in all its manifestations – record keeping, reporting, organization’s accounting policy formation, monitoring, auditing, analysis of reporting data, participation in professional organizations, etc.
Also, accounting can be defined as work on the formation and functioning of the system for collecting, recording and summarizing of the documents based information about the property, equity and liabilities of the organization and its change during the reporting period, as well as information management and analysis (Warren, Reeve, & Duchac, 2011).
Accounting information is widely used in conducting economic and financial analysis, planning of the organization’s activity, predicting its development, monitoring quantitative and qualitative indicators of the organization’s operation.
Thus, accounting is one of the most important departments of any organization determining its business strategy, and influencing the development of its business.
Book-keeping means that every fact of economic activity must be recorded in writing. The absence of a document means that no economic event has taken place.
The main objectives of accounting include:
”“Â Â Â Â Forming complete and accurate information about the activities of the enterprise necessary for internal and external users of financial statements.
”“Â Â Â Â Providing information to monitor the compliance with the law in carrying out business transactions.
”“Â Â Â Â Preventing the negative results of economic activity and identification of the company’s reserves to maintain financial stability (Warren, Reeve, & Duchac, 2011).
The part of accounting directly related to the creation of documents is called documentation.
Another important aspect of the organization of accounting is the systematization and storage of all documents produced in the accounting department, consequently necessary not only for the analysis of financial and business activity of the enterprise but also for the presentation of these documents during an audit or a tax inspection.
Financial reporting is a unified system of data on financial and property situation of the organization and the results of its business activities in the reporting period, which is based on accounting data in the prescribed form (Ittelson, 2009).
A complete package of financial reporting includes the following components:
1. Balance Sheet – a summary statement reflecting the monetary expression of the state of funds of the company both by composition and location (active accounts), and by the source, purpose and terms of return (passive accounts).
2. Profit and Loss Statement – a report of the company stating its profits and losses over a given period. Profit statement fixes profits earned, costs and the final result of activity.
3. The statement showing either all changes in equity or changes in equity other than transactions with owners’ capital and its distribution;
4. Cash Flow Statement – accounting recording should disclose the data on cash flows during the reporting period, describing the availability, inflow and expenditure of funds in the organization. Cash Flow Statement should characterize the changes in the financial state of the organization in the current, investing and financing activities
5. Accounting Policies and explanatory notes – the policy aimed at the management of economic processes and objects, the essence of which consists in fixing the status and parameters, data collection and accumulation of information about economic objects and processes, as well as reflecting this information in the accounting statements (Ittelson, 2009).