Understanding the Basic Elements of Accounting

Probably the first thing you think of is that accountants keep the books — they keep the records of the financial activities of the business. But accountants perform other very critical, but less well-known,

• Accountants carry out vital back-office operating functions that keep the business running smoothly and effectively — including payroll, cash inflows and cash payments, purchases and inventory, and property records.

• Accountants prepare tax returns, including the federal income tax return for the business, as well as payroll and property tax returns.

• Accountants determine how to measure and record the costs of products and how to allocate common costs among different departments and other organizational units of the business.

• Accountants are the professional profit scorekeepers of the business world. They prepare reports for the managers of a business, which keep managers informed about costs and expenses, how sales are going, whether the cash balance is adequate, what the inventory situation is, and, the most important thing — accountants help managers understand on the reasons for changes in the bottom-line performance of a business.

• Accountants prepare financial statements that help the owners and stockholders of a business understand where the business stands financially. Stockholders wouldn't invest in a business without a clear understanding of the financial health business, which regular financial reports (sometimes called the financials) provide.