- Introduction
- Accountancy explained
- What does an accountancy firm do
- Types of accountancy or accounting services
- Methods of accounting
Introduction
Considering the title of this article “Accountancy services: what they do and uses”. This a need to understand the word “accountancy” and to know if it has the same meaning with accounting. Well, in order to clarify your mind we decided to find the meaning of both words. However, to be honest with you, in today’s world, not much, the two terms have been pretty much used interchangeably.
Accounting has been defined as the process of keeping or preparing of financial records of transactions of a firm. This involves analysis, verification and reporting of such records as well as the principles and procedures of accounting. All these are refered to the job of an accountant.
Accountancy on the other hand refers to an accountant’s occupation or profession, particularly in British English. It is the actual process of communicating information about the financial state of a business to its shareholders. Usually in the form of financial statements, which will show all the assets and resources under the control of the company in monetary terms.
While this seems interesting, and probably useful to know for some archaic questions on pub quizzes. Probably even the odd pedantic bloke in your workplace who you want to be able to shut up with your mad knowledge. Trust me, it’s certainly not going to affect your job or career. And you will in pretty much all situations be using the two terms interchangeably without anyone calling you out. So, in this article we’ll be using both words interchangeably.
Accountancy explained
Accountancy or accounting has long existed in different forms and stages of sophistication throughout many human societies. However, the double entry accounting system used today was developed as far back during the medieval period in Europe. Particularly in Venice, and is basically attributed to the Italian mathematician and Franciscan friar Luca Pacioli.
Accountancy is a process that means to process, measure, communicate of financial and non financial information about an economic entity. Like a business and corporation. Accountancy, which severally has been called the language of business, process and measure the results of a company’s economic activities. Then conveys this same information to a variety of its users and include investors, creditors, management, and of course the regulators. Generally accounting practitioners are known as accountants.
Accounting can be classified into different fields which include the following:
- Financial accounting
- Management accounting
- External auditing
- Tax accounting
- Cost accounting
Accounting information systems are designed in a way that it will be able to support accounting functions and related activities. Financial accounting is a field of accountancy that focuses on the reporting of an company’s financial information. And this include preparing of financial statements by CPA tax advisor, for the external users of the information, such as regulators, investors and suppliers. While management accounting being a filed of accounting focuses on measuring. As well as analyzing and reporting of information for internal use by management. The recording of financial transactions, with the summaries of the financials will be presented in financial reports. This is known as bookkeeping! Which double entry bookkeeping is the most common system used nowadays.
Financial statements are basically audited by accounting firms, and are usually prepared in accordance with the generally accepted accounting principles (GAAP). GAAP is set by different standard setting organizations, like the Financial Accounting Standards Board (FASB) in the United States. As well as the Financial Reporting Council in the United Kingdom. Understand that the terms accounting and financial reporting are most times used as synonyms.
What does an accountancy firm do
Accounting firms do offer different kisnds of services that will help business owners stay financially organized. With tax compliant which helps them prepare for business growth. So, business owners shouldn’t just see an accounting firm merely as an outsourcing cost for their bookkeeping. But see them as an integral business partner. Know this, that it is not every accounting firm are offering every kind of service. Meaning business owners need to interview different firms. To be able to determine which is the best fit for their company’s specific business needs, like tax return and tax preparation.
Tip for you
While some accounting firms are well known for specializing in niche services like tax strategy, many will still offer bookkeeping and payroll services too. As well as tax preparation together with business valuation services. Now let’s look at the accountancy services offered by an accounting firm:
Tax planning and preparation
There are many things to tax planning and preparation than just to complete tax returns. Although accounting firms help to prepare both state and federal corporate tax returns. Accounting firms equally prepare year end business documents, like IRS owner K-1, employee W-2 and 1099-Misc forms. Business owners will equally give these accounting firms authority to represent the business owner’s interests regarding notices. This helps when information requests or audits from the Internal Revenue Service (IRS) comes. In additional, business owners has to establish business entities that will create many favorable tax scenarios. Accounting firms will help to identify the best solutions and that will aid in the creation of theses entities that will make the best tax sense for the company.
Some estate planning needs are so unique to many business owners, and is the work of an accounting firm to help identify these. Just taking a look at the big picture of any business and its major owners. This will help the accounting firm to be able to develop the correct mix of business entity creation. Together with the family trust establishment. Firms do work with financial planners, estate planning attorneys, and insurance agents in implementing long term strategies for business transfers. As well as to mitigate estate taxes.
Operational bookkeeping and payroll
Many business owners are very good at providing the product or service that is the backbone of their business. But these same business owners aren’t always experts at the financial aspects of running their business. Accounting firms will help to assist with this. Copies of business bank accounts will be sent to these accounting firms that work with some bookkeepers to help maintain accurate cash flow records. They will equally create profit and loss statements that will break down major areas of costs and revenue streams.
These firms will equally assist with accounts receivable and to manage outgoing monies that will include vendor payments and payroll processing. Accounting firms might equally help to ensure that the required federal paperwork for on-boarding employees. As well as independent contractors is duly completed so that the company will be able to issue year end payment documents properly.
Business development and valuation
Accounting firms are an integral entity when a business needs to create valuation reports or to obtain audits that financing firms always require. When a business is able to seek for a loan or funding from a private investor. The transaction always need to be legitimately and accurately valued. It is equally necessary for potential mergers or purchases. These accounting firms are well able to look at previous years’ revenues, tax receipts and growth patterns to be able to determine a reasonable value of the company to give to potential investors or buyers.
Some accounting firms equally help new businesses with its pro forma financial statements and projections. These Pro forma financials are basically used for initial funding or for the expansion of a business. Accounting firms do use industry data, together with existing company financial history, to be able to calculate the data.
Types of accountancy services
Financial accounting
Financial accounting is type of accountancy services that involves recording and categorizing transactions for a business. This kind of data is generally historical, which means it’s from the past.
It equally involve one generating financial statements based on these transactions. Do remember that all financial statements, such as a balance sheet and income statement, need to be prepared in accordance to the generally accepting accounting principles (GAAP). Public companies need to follow a set of rules that is set out by the government. Which is the Securities and Exchange Commission in the U.S. Financial accounting is often performed to conform to external regulations and is not for the consumption of internal employees to analyze. They don’t have an need to make any financial decisions, that’s why managerial accounting is used for this very purpose.
Cost accounting
Cost accounting is always considered a kind of managerial accounting. It is commonly used in the manufacturing industry, an industry that has much resources and huge costs to manage. Majorly this type of accounting is used internally to assess a company’s operations. This type of accountancy services do concerns itself with the recording and analyzing of manufacturing costs. First, it will look at a company’s fixed, that’s the unchanging and constant costs, like rent. As well as the variable costs, which means the changing costs, like shipping charges and how they will affect a business and how these costs will be better managed.
Auditing
When it comes to accounting, there are two kinds of auditing:
- External and
- Internal auditing.
When it comes to external auditing, an independent third party will reviews a business financial statements to be sure they are presented correctly and comply with the GAAP.
Internal auditing do involve the ability to evaluate how a business will divide up accounting duties. Who will be authorized to do what accounting task and to know what procedures and policies are in place. Internal auditing will help a business to be able to zero in on fraud. As well as the mismanagement and waste or identify and be able to control any potential weaknesses in its policies or procedures.
Managerial accounting
Equally known as management accounting, this kind of accounting will provide data about a business operations to its managers. The focus of managerial accounting is to be able to provide data that managers will need to make decisions about a company’s operations, not to comply strictly with GAAP. This type of accountancy services will include financial analysis, budgeting and forecasting, cost analysis, reviewing past business decisions and many more. Note this that cost accounting is a form of managerial accounting.
Accounting information systems
Basically known as AIS for short, accounting information systems do concern itself with everything that has to do with accounting systems and processes. As well as their construction, installment, application and observation. This will include accounting software management together with the management of bookkeeping and accounting its employees.
Tax accounting
Tax accounting always involve the business to plan for tax time and to prepare for tax returns. This type of accountancy service will aide businesses be compliant with the regulations set up by the IRS. Tax accounting will equally help businesses to figure out their income tax and other taxes and how to be able to legally reduce their amount of tax owing. Tax accounting equally analyzes tax related business decisions, including any other issues related to taxes.
Forensic accounting
This type of specialized accountancy services is highly trending in accounting and is becoming increasingly very popular. Forensic accounting will focuse on legal affairs such as inquiry into a fraud, legal cases and dispute and do claim resolution. Forensic accountants will need to reconstruct financial data when the records aren’t very complete. This will be to decode the fraudulent data or convert a cash accounting system to an accrual accounting. Forensic accountants are basically consultants who will work on a project basis.
Fiduciary accounting
This branch of accountancy services centers around the management of a property for another person or business. The fiduciary accountant will manage any account and activities that are related to the administration and guardianship of the particular property. Fiduciary accounting will equally cover estate accounting, trust accounting and receivership, this means to appoint of a custodian of a business’s assets during events like bankruptcy.
Some time people equally ask:
What are the three types of accounting?
Though there are at least eight branches of accounting in total, however, there are three major form of accounting, that’s according to McAdam & Co. These form include: tax accounting, financial accounting and management accounting.
Management accounting is very useful to all types of businesses you can think of and tax accounting is always required by the IRS. Financial accounting is only relevant to bigger companies.
Tax accounting
In this form of accounting, all reports and records are made in accordance to the regulations established by the established tax authorities. Small businesses might decide to hire a tax accountant who specializes in making sure that the accounting records are IRS-compliant. As well as who transfers the necessary information to the company tax return.
The IRS always require that companies should use one accounting system and make sure they stick to it. Whether they are using the cash or accrual method, will determine when they report their revenue and expenses.
Financial accounting
Financial accounting is a form of accounting performed along side with potential lenders and investors in mind, as well as GAAP, which is known as generally accepted accounting principles. Using this very standard accounting methods will help investors and lenders get an accurate idea or read on the business’s financial health. When the company is looking to finance their new purchase or venture.
It equally help businesses to be transparent by reporting their management’s income. That said, basically small businesses aren’t required to use GAAP and its accrual method. Any business that will manufacturs, buys or sells products must make use of GAAP, in accordance to the IRS. Larger businesses will often employ accountants in house to assist them comply with these high standard accounting principles.
Management accounting
This category of accounting doesn’t not in any way follow GAAP but it does follow the standard accounting practices taught in any accounting school. The focus here is how to generate financial statements like cash flow projections, budgets, product costings, and business acquisition analysis reports. Standard reports which include the balance sheets, profit and loss statements and cash flow statements are generated in a way that it will help managers analyze both past decisions and plan for the future. Small businesses can only use cash projections. While larger companies, especially manufacturers, will make use of many reports.
Methods of accounting
Let’s consider the two types of accounting methods: cash and accrual. Many small businesses might use either methods. Businesses like corporations or one that have gross revenue over $5 million per year are advised to use the accrual method, this is according to the IRS.
Cash method
This cash accounting method is regarded as the simplest method. Any time money comes in, immediately revenue is recorded. When money is spent, an expense will be recorded.
Accural method
In this accrual accounting, the revenue will be recorded when it’s earned, not actually when money comes in. A company might perform a service and immediately bill the client. Even when the client hasn’t paid yet, revenue will still be recorded in the books. Expenses are always matched to revenue in accrual accounting, meaning they will be recorded at the same time with the revenue. For instance, if a house painter needs to buy paint for a job. The total income for his job and the cost to buy the paint will be recorded in the books at same time. It doesn’t actually matter when the paint was bought.
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