ACCOUNTING

English for Bussiness

By
Ridwan Mahanka. M.Hum.,M.M
Accounting

■ Accounting is how your business records, organizes, and understands its financial
information.
■ Every business organization that has economic resources, such as money,
machinery, and buildings, uses accounting information. For this reason, accounting
is called the language of business. Accounting also serves as the language providing
financial information about not-for-profit organizations such as governments,
churches, charities, fraternities, and hospitals. However, in this chapter we will focus
on accounting for business firms.
Importance of Accounting

■ You probably will find that of all the business knowledge you have acquired or will
learn, the study of accounting will be the most useful. Your financial and economic
decisions as a student and consumer involve accounting information. When you file
income tax returns, accounting information helps determine your taxes payable.

■ Understanding the discipline of accounting also can influence many of your future
professional decisions. You cannot escape the effects of accounting information on
your personal and professional life.
Where Do Accountants Work?

■ Accountants work for companies in every industry, enjoying careers at small

businesses all the way up to very large companies. Most companies would not be
able to operate without an accountant, as it’s an accountant’s job to report through
financial statements the company’s economic health. Only through these financial
statements can a company’s management make informed decisions about how to
properly allocate resources to projects, by directing how to spend or invest the
company’s money.
Accounting vs bookkeeping

■ Accounting and bookkeeping overlap in many ways. Some say bookkeeping is one
aspect of accounting. But if you want to break them apart, you could say that
bookkeeping is how you record and categorize your financial transactions, whereas
accounting is putting that financial data to good use through analysis, strategy, and
tax planning.
The accounting cycle

■ Accounting begins the moment you enter a business transaction—any activity or

event that involves your business’s money—into your company’s ledger.

■ Recording business transactions this way is part of bookkeeping. And bookkeeping

is the first step of what accountants call the “accounting cycle”: a process designed
to take in raw financial information and spit out accurate and consistent financial
reports.
The accounting cycle has six major steps:

■ Analyze and record transactions (looking over invoices, bank statements, etc.)
■ Post transactions to the ledger (according to the rules of double-entry accounting)
■ Prepare an unadjusted trial balance (this involves listing all of your business’s
accounts and figuring out their balances)
■ Prepare adjusting entries at the end of the period
■ Prepare an adjusted trial balance
■ Prepare financial statements
The different types of accounting

■ Financial accounting
■ Managerial accounting
■ Tax accounting
■ Cost accounting
■ Credit accounting
Financial accounting

■ Every year, your company will generate financial statements that people outside of
your company—people like investors, lenders, government agencies, auditors,
potential buyers, etc.—can use to learn more about your company’s financial health.

■ Preparing the company’s annual financial statements this way is called financial
accounting.
Managerial accounting

■ Managerial accounting is similar to financial accounting, with two important

exceptions:

■ The statements produced by managerial accounting are for internal use only.
■ They’re generated much more frequently—often on a quarterly or monthly basis.
■ If your business ever grows to the point where you need to hire an accountant full-
time, most of their time will be taken up by managerial accounting. You’ll be paying
them to produce reports that provide regular updates on the company’s financial
health and help you interpret those reports.
Tax accounting

■ When your accountant provides you with recommendations for how to get the most
out of your tax return, that’s tax accounting.

■ Tax accounting is regulated by the Internal Revenue Service (IRS), and the IRS
legally requires that your tax accounting adhere to the Internal Revenue Code (IRC).

■ Tax accounting is all about making sure that you don’t pay more tax than you are
legally required to by the IRS.
Cost accounting

■ You’re doing cost accounting whenever you’re trying to figure out how to increase
your margin, or deciding if raising prices is a good idea.

■ Cost accounting involves analyzing all of the costs associated with producing an
output (whether it be a physical product or service) in order to make better decisions
about pricing, spending and inventory.

■ Cost accounting feeds into managerial accounting, because managers use cost
accounting reports to make better business decisions, and it also feeds into
financial accounting, because costing data is often required when compiling a
balance sheet.
Credit accounting

■ Credit accounting involves analyzing all of a company’s unpaid bills and liabilities
and making sure that a company’s cash isn’t constantly tied up in paying for them.

■ Credit accounting can be one of the most difficult kinds of accounting to do well,
because it usually involves telling someone something they don’t want to hear (like
your accountant telling you that you should be borrowing less.)