Question 1

What is accounting?

Accepted Answer

Accounting refers to recording and organizing financial transactions and records. An accountant focuses on identifying financial transactions and then summarizing them for stakeholders. In addition, an accountant analyzes transactions, and companies use those findings to improve their operations. Accounting reports play an integral role in ensuring a business or individual conforms to IRS regulations, as well as those of other local and federal oversight bodies. The records produced in the accounting process typically involve financial statements that summarize transactions over a particular period of time, such as a fiscal quarter or year. These can be useful when assessing the effectiveness of a budget or ensuring the company pays the right amount of taxes. Accountants are also commonly responsible for presenting data to financial analysts or CFOs so they can assess the organization's cash and make adjustments accordingly.

Question 2

What are the different types of accounting?

Accepted Answer

The different types of accounting include financial accounting, which involves collecting financial information and using it to generate reports. Accountants then present these reports to external stakeholders, such as investors and regulatory bodies. Another form of accounting, public accounting, is involved with investigating an organization's financial statements to see if they accurately represent the company's financial position and its expenditures, income, and investment interests. Government accounting uses a different system that is specific to government entities that render services to the public, or to private companies they have contractual agreements with. Management accounting focuses on gathering financial information so an organization's managers can make decisions internally. Tax accounting is different in that a tax accountant's job solely revolves around tax laws and ensuring their clients conform to them.

Question 3

Should I become an accountant?

Accepted Answer

If you think you would enjoy analyzing and reporting financial transactions to help individuals and organizations, then you may want to consider becoming an accountant. Companies will always need someone to keep track of their finances, whether for tax reasons or the internal benefit of the organization, so there will always be a need for accountants. You may also want to become an accountant that works for a government organization if ensuring that people aren't abusing financial structures at the expense of the public is of interest to you. Some people want to be an accountant because it is a structured job with clear-cut responsibilities. An accountant's role generally focuses on performing specific duties, such as preparing taxes, figuring out profit and loss statements, or assessing income versus expenditures.

Question 4

What is a certified public accountant (CPA)?

Accepted Answer

A certified public accountant (CPA) is an individual that has completed 150 hours of the required education. They will have had at least two years of experience in public accounting and must pass the Uniform CPA Exam to receive a CPA license from the Board of Accountancy. A CPA typically works in some form of accounting, whether it be in a corporate setting within a company or for a firm doing public accounting. Depending on the position they hold, a CPA’s job can entail a variety of duties, including maintaining financial statements, bookkeeping, auditing, or preparing income taxes.

Question 5

What is the difference between accrual and cash basis accounting?

Accepted Answer

The difference between accrual and cash basis accounting is the recording time for revenue and expenses. Larger businesses use the accrual method, which records all transactions as soon as they happen, whether money has changed hands or not. This method helps a company see the long-term profits of their business, but it doesn't give an accurate statement as to the day-to-day cash flow. Cash basis accounting only records money as it's received or paid out. This aids personal finance or smaller businesses to track the exact amount they have going in or out at any given time. Cash basis accounting doesn't show the long-term profits since it's focused on the physical exchange of money as opposed to future promised earnings.

Question 6

What are the three financial statements and why are they important?

Accepted Answer

Companies portray their financial state using the cash flow statement, income statement, and balance sheet. These three statements will help the management, or any potential investors and lenders, see exactly how the company is currently fairing and what issues need addressing. The cash flow statement shows the liquidity of the company by outlining all transactions of cash coming in or out over a specified amount of time. The income statement gives a detailed description of the revenue of the company and any operating expenses incurred. The balance sheet is a full analysis of the financial position of the company providing breakdowns in the company’s assets, liabilities, and shareholders’ equity.

Question 7

What is inventory accounting and what are the different methods used?

Accepted Answer

Inventory accounting refers to assigning value to goods that represent future profit to the company. These goods are divided into varying stages of production and assigned a value accordingly. Constant monitoring and adjustments to these values help show an accurate statement of the company’s current asset values. The method of accounting in the United States is the generally accepted accounting principles (GAAP). Most other countries fall under the International Financial Reporting Standards (IFRS). Each has specific guidelines as to how goods are accounted for within a company.

Question 8

What is the difference between IFRS and GAAP?

Accepted Answer

The International Financial Reporting Standards (IFRS) dictates financial and accounting standards for most countries. In the United States, however, generally accepted accounting principles (GAAP) are followed. The main difference between the two methods is that IFRS is principles-based, and GAAP is rules-based. GAAP gives detailed guidelines concerning the standards and procedures accountants must follow when creating financial statements. The IFRS provides an outline with logically sound principles to guide an accurate representation of a company’s finances. A few specific differences are in the directions towards accounting of inventory. The IFRS bans last-in, first-out (LIFO), but GAAP allows it. Companies using IFRS are allowed inventory write-down reversals, but not those using GAAP.

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