You may have heard the term accounting before or read it in your school books. Colloquially it is also called REWE. In this article you will learn what accounting is and what tasks, sub-areas and goals it entails.
Accounting definition – understand the basics
That accounting is part of the management of the company. It is defined as the planning, control and control of all liabilities and assets of a company. So it’s about managing all of a company’s debts and assets.
Accounting must continuously record, evaluate and monitor business activities.
It is divided into four forms:
- external accounting
- internal accounting
- business statistics and comparative calculations
- planning calculation
In companies, this is usually the accounting responsible. To do this, she must be in constant contact with all those departments that influence the financial situation of the company, including purchasing, sales and logistics.
Accounting – Functions
Accounting has a total of four different tasks to perform. This includes the documentationthe informationthe control and the planning.
documentation function
The documentation function includes that Documentation of all economic business transactions. This is in the form of documents that change the company’s assets, equity and debt, and profit and loss. This function shows exactly when and where something happened. Each business transaction can be assigned precisely.
Figure 1: Documentation function
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information function
The information function serves the management orientation and to development appropriate strategies. In this context, management is given all relevant information about the assets and debts of the company.
Figure 2: Information function
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control function
Through the control function, the company becomes one control and information system. This should enable the management to check the economic situation of the company at any time. In this way, she can identify at an early stage whether there are any problems and how the company is doing financially. The system can also show whether it is still solvent (liquid).
Figure 3: Control function
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planning function
The scheduling function is also called disposition function designated. It includes the processing and provision all existing information about the financial and economic situation of a company and thus represents the basis for planning the future activities and decisions of the company.
This feature also includes the budgeting. So it enables one forecast about the future economic situation of the company. In this way, it can be better allocated how much budget is available for investments, for example.
Figure 4: Planning function
Source: clipart.com
Central areas of accounting – tasks
As mentioned above, accounting is divided into four central areas:
- external accounting
- internal accounting
- business statistics and comparative calculations
- planning calculation
In the following you will get to know them better.
external accounting
External accounting is aimed at all institutions and people outside of the company and is also called financial accounting designated.
It serves to present the financial events of the company to the relevant external people and institutions (external stakeholder groups). This means that the external accounting department passes on all figures and data to those outside the company who have an interest in the company’s financial situation. These include:
- Country
- suppliers
- customers
- banks
- Debtors
- creditors
- company end
External accounting is legally obliged to to provide this information and to present the financial and earnings situation to the outside world. This is also called duty of disclosure and is regulated in the German Commercial Code (HGB). In addition, there are further obligations in the Value Added Tax Act (UstG), the Corporation Tax Act (KStG) and the Trade Tax Act (GwStG).
One interest group to which the external accounting department has to deliver its figures is the tax office. It needs the company’s figures and data in order to be able to determine the amount of the taxes and counteract possible tax evasion.
What exactly needs to be published always depends on the size of the company. Small corporations, for example, only have to publish the balance sheet.
Internal Accounting
The internal accounting of a company deals with the planning, management and control of all internal processes. It is thus operational and takes place in areas of the company such as management and purchasing.
In contrast to external accounting, internal accounting is also not bound by legal obligations.
Cost and performance calculation
With the help of the so-called Cost and Performance Accounting (KLR) a company can use the most important figures on the financial situation of the company evaluate.
The KLR is basically a list of all the company’s achievements. The costs incurred for the provision of a service are assigned here to those who caused them.
The cost and performance calculation shows that costs of €2000 were incurred for the purchase of employee clothing. This sum is now assigned within the KLR to those who caused it. In this case, for example, the employees of the warehouse, which is why the money is assigned to this department or the item personnel costs.
The KLR thus represents an important part of internal accounting because their information can not only be used to close the annual balance sheet. The management of a company also receives all the relevant details that it needs in order to identify potential savings in various areas.
Business statistics and comparative calculations
Within the framework of business statistics and comparative calculations, the company receives important and relevant information from financial accounting about the company’s activities. The management knows about the current financial situation and can accordingly make the right decisions for a successful future.
These numbers are usually evaluated in tables or graphics. Here, for example, a comparison is made between how the company is positioned financially at the present time and how it should actually be positioned according to the business plan. This process is called target/actual comparison.
In January of this year, you set yourself the goal of saving a total of €100 by December. As a stage winner, you want to have already covered €50 by June.
In June you now look into the piggy bank. If you find that there is €50 in it, you are well on the way to reaching your annual goal. However, if there’s only $20 in the box, you know you’ll have to save a lot more over the remaining six months to get that $100 together.
A company does nothing else in the context of statistics and comparative calculations.
In addition, within the framework of statistics and comparative calculations, the figures of one’s own company are compared with those of the competition. This process is known as industry comparison.
The planning calculation
The planning calculation is future-oriented. Within this framework, a company can develop strategies and measures for the future. The planning calculation refers to the important figures from the financial accounting as well as the cost and performance accounting.
Figure 5: Planning calculation future-oriented
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Accounting – The most important thing
- The accounting of a company has to fulfill four different tasks: the documentationthe informationthe control as well as the planning.
- Accounting is also divided into four sub-areas:
- external accounting: In this context, companies are legally obliged to provide information about the financial situation of the company to all relevant interest groups (i.e. customers, suppliers, banks, providers of outside capital, the end of the company and creditors).
- Internal Accounting: This deals with the planning, management and control of all processes that occur within the company. It is not bound by legal obligations and rather serves to inform management.
- Statistics and comparative calculation: Here the company receives important and relevant information about the company’s activities by means of the figures from the financial accounting.
- planning calculation: It is future-oriented and helps the company to develop future strategies and measures.