Basic accounting is the discipline that tries to record each and every one of the economic and financial movements of a company.
In essence, although there are different types of accounting (financial, cost, public …), the basic one brings together the general aspects that all types have in common.
Basic accounting features
Some of the main characteristics that we can find around basic accounting are:
- Accounting record of economic and financial movements of the company.
- Accounting based on local legal regulations and principles.
- Realization of part or all of the financial statements.
- Analysis and accounting monitoring of the statements made.
- Accounting method via double entry.
Thus, the factors that the different accounting disciplines have in common are, in summary, the action of the accounting record through double entry, the intervention of a legal framework or set of rules, the partial or total obligation to prepare accounting statements and, therefore, hence, its analysis in order to detect process failures.
With regard to double entry, the general framework is the use of assets, liabilities and equity. Within these magnitudes, it must be taken into account that the total sum of the liabilities and the net worth results in the total amount of the assets.
ASSETS = LIABILITIES + EQUITY
One of the advantages or reasons for using this method is to know the origin of the asset that is acquired (a premises, an office, merchandise, etc.), which can be through liabilities (credit, loans …) or through equity ( self-financing, statutory reserves…). Ultimately, whenever assets increase, one of the liability or equity items must increase, and vice versa.
With this, it is possible to analyze in an exhaustive way at the accounting level any company that has an accounting that is faithful to what it does, since accounting analyzes usually show the present and future viability of a company quite well.
Although a multitude of detailed reports can be made depending on the target company, the so-called annual accounts are those reports that serve to obtain homogeneous information from all companies. In this way, they can be the object of comparisons.
- Balance sheet: This economic-financial report includes the general situation of the company at a given time. The information is made up of assets, liabilities and equity.
- Profit and loss account: In this case, the report records all the company’s income and expenses in a given interval.
- Statement of cash flows: It is an accounting statement that collects the cash movements of the company. This is intended to have a certain control over the destination of the business liquid.
- Statement of changes in equity: As its name suggests, it tries to explain the evolution of equity: This oscillates driven by the increase or decrease of assets or liabilities.
- Accounting report: Finally, in this annual account you can consult the clarifications and notes that we can find in the previous financial statements in detail.
Ultimately, these are the reports that can be generated in accordance with most accounting regulations.
Although basic accounting is the trunk of the accounting tree, there are different branches that emanate with their own characteristics and objectives.
- Financial accounting: It collects the movements and activities that have some relation with the form of financing of a company.
- Tax accounting. They are the set of accounting processes that must be carried out to register taxes and fiscal obligations.
- Internal accounting: It is the accounting that is responsible for analyzing the costs of the company internally.
- Commercial accounting: This type of accounting records the commercial or ordinary activity of the business, such as the sale of merchandise or the provision of services.
- Public accounting: In this case it is the accounting that serves to record the economic-financial movements of the different public administrations.
Basic accounting usage example
If we ask ourselves at what point an organization must decide to implement an accounting system either manually or digitally, two cases will be exposed. One in which it is mandatory and another in which it is not.
- In this first case we find a neighborhood organization that is dedicated locally through small contributions from cleaning, administration of supplies and general maintenance of the buildings involved in the neighborhood. In this case, a property administrator would have to be hired to control the accounting of the neighborhood community, which is why it is mandatory to have an accounting since the organization is regulated and is of a public nature for the neighbors.
- A group of young university students has obtained a small entrepreneurship grant for the development of a mobile application. As there is no commercial activity at the moment, nor has any type of organization been established, it is not mandatory to carry out an accounting follow-up.
In this way, we briefly see when accounting should or should not be implemented depending on the situation.