What is accountancy in commerce? – In simple terms, accountancy is a subject that accountants primarily need to learn so as to get a grasp on accounting. However, under the subject, there are many branches of accounting in which accountants specialize based on the skills and needs of the market. Accountancy is one of the major branches of commerce study and is a vast subject consisting of various terms and theories.
In this article, you will learn about accountancy and what is its importance in commerce and business. You will also understand the purpose and importance of accounting and how accountants operate. Apart from that, we will also discuss some of the major branches of accounting for a deeper understanding. Finally, we will share with you some of the popular careers that one can choose after learning accounting.
What Is Accountancy In Commerce?
According to AccountingTools.com,
“Accountancy is the practice of recording, classifying, and reporting on business transactions for a business. It provides feedback to management regarding the financial results and status of an organization. The key accountancy tasks are noted below.”
The subject mainly deals with measurement, analysis, and evaluation of the finances of a firm. People who learn accountancy (accountants) are able to read the financial statements of a business or a trader. The financial statements are required to maintain daily records of the day-to-day transactions of the business.
The recording of the transactions, their measurements, and analysis are collectively called the Accounting Cycle. The process of accounting basically helps in making business decisions since it deals with the recording of financial data.
The rules of accounting are set as per accounting standards, also known as Generally Accepted Accounting Principles (GAAP). The accounting principles are designed to improve the comparability and consistency of financial reporting across industries.
Purpose And Importance Of Accountancy
According to Investopedia,
“Accounting is one of the key functions of almost any business. It may be handled by a bookkeeper or an accountant at a small firm or by sizable finance departments with dozens of employees at larger companies. The reports generated by various streams of accounting, such as cost accounting and managerial accounting, are invaluable in helping management make informed business decisions.”
The process of accounting basically provides you with a clear picture of the financial health of the company or the organization in question. The accounting data (or the finances) of the company serves as a catalyst for the business’s resource management, as well as its strategic growth.
Basically, with the help of accounting, the accountant inputs raw data and figures and retrieves processed information in the form of financial statements. These are done with the help of various accounting tools that accountants learn in the subject of accountancy. The whole point of the process of accounting is to get an idea of what is working for the business and what is not working so that it can be fixed soon.
According to the Forbes Advisor,
“Accounting information exposes your company’s financial performance; it tells whether you’re making a profit or just running into losses at the end of the day. This information is not just available to you, but also to external users such as investors, stakeholders and creditors who would want to be enlightened about your business, to figure out whether it’ll be a good choice to invest in and what they can expect in returns.”
Accountancy In Commerce – What Are The Types Of Accounting?
As already discussed, accounting is a vast subject, and you can break down the subject into different categories. Each of the categories in accounting consists of specific sets of information and helps in documenting particular transactions of the business.
The following are the major branches of accounting about which you will need to know:
1. Financial Accounting
This is the process through which financial accountants generate interim and financial statements of a business organization. The results of the financial transaction are summarized in the balance sheet, cash flow statement, and income statement.
2. Managerial Accounting
In managerial accounting, the managers make use of the financial data to make managerial decisions, so as to organize and utilize information in various ways. They focus on making management decisions, forecasting, budgeting, and financial analysis tools.
3. Cost Accounting
The job of cost accountants is to enable the business to make decisions on costing. In cost accounting, the accountant considers all the costs that are associated with the production of a product or a service. Analysts, managers, business owners, and accountants make use of the information in cost accounting to find out the cost of the products.
4. Tax Accounting
In tax accounting, accountants have to use different sets of rules to report the financial position of a company or any other organization. The rules are set at the levels of government (federal, state, and local). Tax accountants need to balance compliance with the rules of reporting so as to minimize the tax liability of the company they are working for.
What Are The Types Of Career In Accounting?
Accounting careers are several and consist of different levels depending on the specialized branch of the individual, as well as the individual’s experience. One of the most common accounting jobs is that of a bookkeeper. There are also Qualified accountants who deal with advanced accounting practices. Some of the roles of qualified accountants in the United States include Certified Public Accountant (CPA) and Certified Management Accountant (CMA).
Why Is Accountancy In Commerce Important?
Accountancy in commerce is one of the most important subjects, as we know by now. Without accountancy, no one can ever form a strong background in commerce. Therefore, students must always look forward to putting effort into accountancy more than any other subject. The fact that people pursuing a career in accountancy will mainly be related to business, they must understand why it is important to have the strongest base in accounts to be able to nail those calculations further in businesses.
Here are the reasons why accountancy in commerce plays such a major role:
Evaluate the Performance Of The Business
Financial accounting helps in assessing and measuring the financial success of a company and its failures. Business owners may determine very precisely what quantity of profit and loss the business has generated over a given time period. The key performance indicators can help measure these various facets of the business performance.
Developing Budget Projections In Accountancy
Because of budgets, business managers may spend a lot less time worrying about recurring issues, such as selling a product at a loss. It allows the owners of the business to concentrate more on the bigger picture. Budgets are offered for the fund distribution to the objectives to promote the expansion of the business and aid in the understanding of everyone about the aims of the organization, for better or worse.
Maintain The Financial Statements
It is with the aid of accounting that the financial statements are maintained. Every business needs to maintain their financial statements due to the tax filing purposes. It would become extremely easy to solve these situations and reach your goals if you are maintaining an accurate record of the finances of your company.
Helps In Decision Making
Financial accounting records would support decision-making at every organizational level. The financial data that is relevant to the area of operations is what the management uses at all levels to make decisions. When business owners are aware of their financial standpoint, they may be able to make better decisions that relate to their finances.
It Is Important For Taking Loans Or Getting Investments
Businesses frequently need loans in order to expand without having to diminish their operating budget. The ability of the creditor to give away money to an organization is mainly influenced by the financial accounting of the organization. Financial statements list all the assets of the company along with any short-term or long-term debt. Lenders, in that case, would have a clearer picture of whether the company is worth the loan.
What is accountancy in commerce? I hope this article was helpful for you in getting a better understanding of what accountancy means in commerce or business. It deals with debit or credit, which is the language of a business or financial transaction. The job of the accountant is to ensure that the debit and credit match or find out the difference.
The process of accounting is vast, and there are many types of jobs based on the branch with which an accountant is associated. Do you have any more information to add regarding the study of accounting? Share your thoughts and opinions with us in the comments section below.