What is accounting?
According to the American Accounting Association, “Accounting refers to the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information. “
Accounting is the process of recording, analyzing, and reporting financial transactions. Accounting is one of the key functions of every business and is performed to ascertain the business's financial position at any given time.
Accounting provides vital information to its stakeholders and decision-makers about the revenue earned by a business, profit and loss, and its assets and liabilities for future decision-making. An accountant is a person who is qualified to record, inspect, analyze, summarize, and report financial accounts.
Objectives of accounting
- Recording transactions- The primary function of accounting is to record financial transactions systematically in the general ledger.
- Ascertain profit and loss- Through the accounting process, we compare the income and expenditure and ascertain whether it is making a profit or a loss.
- Displays the financial position of the business- One of the objectives of accounting is to depict the business's financial position. The financial position is depicted through a balance sheet that displays the business's liabilities and assets.
- Decision-making- Accounting plays an important role in decision-making. Therefore, one of the objectives fulfilled by accounting is that it aids in decision-making and setting realistic goals for a business to achieve.
- Informing stakeholders- Apart from the business owner, a business also has investors, shareholders, and suppliers. Through transparent financial reporting, the business can inform its stakeholders about its financial position, its liquidity, and whether the business made any profits or losses.
Importance of accounting
Evaluation of business performance- with accounting, businesses can evaluate the performance of their business.
- Decision-making- Financial statements that are produced at the end of the accounting process aids in important decision-making. With the evaluation of business performance by studying financial statements, decision-makers can make important financial decisions.
- Record keeping- Every business keeps past financial records to compare and study their business’s market growth.
- Helps in preparing financial statements- The preparation of financial records is preceded by creating careful accounts. Therefore, accounting plays a critical role in preparing profit and loss statements, filing taxes, and preparing other financial statements.
- For loans- Businesses require loans to function. Any financial institution will put your business under intense scrutiny before lending you money. Properly prepared financial statements are very important to acquire and qualify for a loan.
- Planning budget- Financial records and previous financial statements play an important role in planning a budget. This is because financial statements help in making strategies, save money, and reduce expenditure.
Accounting guidance for logistics and transport companies
A logistics company is a company that is involved in the process of controlling the movement and storage of goods between its point of origin and final consumption destination. Logistics refers to the overall process of acquiring, storing, and then transporting a product to its final destination.
In the following segment, we will provide accounting guidance for companies involved in logistics and transportation. The following is a list of accounting guidance for logistics and transportation companies-
- Follow the International financial reporting standards- Logistics and transportation companies must adhere to the rules and guidelines stipulated under the International Financial Reporting Standards issued by the International Accounting Standards. This is particularly important accounting guidance because logistics and transportation companies operate internationally and participate in cross-border transactions.
- Adhere to the guidelines under local legislation- Logistics and transportation companies should follow the local rules and guidelines stipulated under local legislation. Transportation companies operate internationally and participate in cross-border transactions. Therefore, they must follow the international financial reporting standards and the guidelines set by local authorities.
- Produce accounts every month- Logistics companies have high transaction volumes. Therefore, transportation companies must prepare financial forecasts, cash flow statements, and income statements frequently. This accounting guidance principle is followed to reduce manage finances effectively and to reduce financial risks. Many variables are associated with logistics companies that need to be recorded, like shipping costs, freight charges, storage costs, oil prices, etc.
- Use the most up-to-date accounting software- Logistics and transportation companies should use the most up-to-date accounting software for recording their financial transactions. This is because new accounting software offers cloud-based central servers, which allow for faster collaboration and can automate manual tasks.
New accounting software reduce manually occurring errors, organizes financial data in one place, saves time on financial admin, and can create invoices in seconds.
- Invoice auditing- Transportation and logistics companies deal in hundreds and thousands of invoices daily. Therefore, an important accounting guidance principle is to carefully record, audit, and account for all invoices sent and received. Invoice auditing is performed to avoid blunders in the annual financial statements.
- Record all invoices and receipts- An important accounting guidance principle is to maintain digital copies of invoices, sales records, purchase slips, accounts receivable, and accounts payable in a digital folder. Thorough documentation of financial data, receipts, and invoices should be done to maintain transparency.
- Profitability analysis- Regular profitability analysis brings more transparency into the accounting of logistics companies and is a great way to measure actual profits and monitor fluctuating costs. This accounting guidance principle is performed because variable costs in the logistics and transportation business are subject to change, and this can fluctuate the profitability of the business.
In conclusion, in the aforementioned section, we learned about accounting, why it is important for a business, and some accounting guidance principles for logistics and transportation companies for better accounting.
In today's world, logistics and transportation companies play an incredibly important role. Every day they deal in hundreds and thousands of financial transactions. Due to the sheer volume of these transactions, the accounting process can be a little complex. Therefore, we can effectively manage financial recording and accountants in logistics companies with the accounting as mentioned above guiding principles.
Countless companies rely completely on outsourcing accounting firms for a long time. In this way, they have saved a lot of money as well as time. Hopefully, the article was helpful to you. And has helped you show all the positives of outsourcing accounting. For more details or any queries, reach us at hgoyal@especia.co.in or 9310165114.
