What is accounting?   (Part 2)

Accountants use many different tools when fulfilling their duties: accounting software programs are typically used while accountants rely more on knowledge and experience than anything else.

Like any profession, accounting requires ongoing education; an accountant always strives to increase their skills and knowledge base in order to provide the best service possible.

However, there are some basic principles of accounting that form a foundation from which all other concepts stem: – Revenue is recognized when earned (e.g., cash received from

However, there are some basic principles of accounting that form a foundation from which all other concepts stem: – Expenses are recognized when incurred (e.g., raw material purchased for resale).

However, there are some basic principles of accounting that form a foundation from which all other concepts stem: – The matching principle requires that expenses be matched with revenues when they occur in nature rather than at year-end through accrual basis accounting.

– Accrual basis accounting matches revenues and expenses even if they aren't paid in a given period. This makes it possible to produce monthly financial statements.

– Assets, Expenses, and Liabilities must all be matched with the related revenues, expenses, or owners' equity on a regular and systematic basis (monthly and yearly).

For example, an asset is not purchased on December 31st; instead, it is purchased on January 2nd and used for five years.

Each year the accountant will report revenue offset by an expense; those transactions will occur every month though they won't appear as one lump sum at the end of the period (which would be misleading as it wouldn't portray how much was actually consumed each month).

In short, accountants have a duty to provide high-quality information that enables their clients to make decisions about investment opportunities, expand/contract operations, etc.

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