Tax accounting is indeed one of the functions of the accounting department. But just one of the functions that business accounting performs.
The Law “On Accounting” sets forth the main purpose of accounting – the formation of complete and reliable information about the activities of the organization.
Complete – it means to fix, encode, reflect all operations occurring in the enterprise. I received the material at the warehouse, gave it to the workshop, made a defect in production, worked beyond the norm, shipped the products – all this would record the accounting at the manufacturing plant.
Reliable – it means to reflect the operation correctly, that is, as it is in reality and in a timely manner.
Just think about it, encode each step of financial and economic activity in several numbers. For these purposes, in accounting, financial accounting services have a little more than 60 accounts. Of course, given the several levels of analytics that modern accountants use with sub-accounts and sub-accounts, there are significantly more accounts in the accounting service’s arsenal, but this is not the main thing.
What does accounting and Leonardo da Vinci have in common?
Modern accounting is based on the principles formulated more than 600 years ago by Fra Luca Bartolomeo de Pacioli, an Italian mathematician, born in 1445.
Luca Pacioli was a friend of Leonardo da Vinci, sincerely believed that the highest manifestation of human genius is painting, but at the same time, according to Pacioli, “accounting registers (books) are the same drawings that reveal more secrets than all the paintings of all museums of the world”
It was Luca Pacioli who formulated two accounting objectives:
receiving information on the state of affairs, “for accounting should be conducted so that it would be possible without delay to receive all kinds of information regarding debts and claims” (L. Pacioli. Treatise on bills and records. M. Finance and Statistics, 1983) ;
calculating the financial result, “for the purpose of every merchant is to acquire a corresponding benefit for his content.”
You can achieve these goals with the help of accounts and double entry.
Pacioli: “Accounts are no more than the proper order established by the merchant himself, with the successful application of which he receives information about all his affairs and whether these things are going successfully or not.”
That is, an important skill that a good accountant should possess is to draw up a chart of accounts for accounting so that it is easy to analyze and manage the economic activity of an enterprise.
Double entry magic
double entry in an accounting
But accounts are just one of the elements of the system, and we get the full picture thanks to the double entry.
Prove, prove, prove
The key to clean bookkeeping is exact evidence. An amount can only be credited correctly to the accounting system when a proper invoice is received. Important here are details of quantity and unit prices as well as total, net, and gross prices.
If extra costs not contractually incurred have arisen, they must be traceable on the receipt. This is about detail. Every detail should be well documented, all evidence collected and external service providers properly billed.