Basic accounting methods and their characteristics

To uncover the essence of any science, you need to understand that there are three components to the study of any discipline: subject, object and method. The subject will tell us what science is studying, and with the help of the method we will understand how it does it, but the object is a collection of different studied attributes.

For a deeper understanding of the topic, we will analyze in detail what accounting is, what tasks and goals this science sets itself.

Definition of the term

Accounting is a unified system of collecting, registering and summarizing information in monetary terms about available property, organization obligations and cash flows, using the method of continuous, documentary and continuous accounting of all business interactions.

The Law on Accounting states that the following people can keep accounting:

• chief accountant, who is registered in the organization under an employment contract;
• full-time accountant, also issued in the organization under an employment contract;
• CEO (in the absence of an accountant);
• a company that provides accounting support to the organization.

About the subject, object and method of accounting

As mentioned earlier, the definition of a method of accounting implies how and with what methods a scientific discipline studies a subject.

The method is based on general methods of cognition of the world, but there are individual methods of studying this science. Accounting reflects the property and monetary assets of the organization, as well as the sources of their formation. These sources are called liabilities, as they are always opposed to assets.

To achieve equilibrium of assets and liabilities, use the balance method. This method aims to measure these quantities and obtain relevant information.

In accounting, each transaction affects the property and monetary assets of the organization, so it is so important to form clear figures about the organization. For this, there are accounting methods. This is a complex of techniques and tools that reflects the financial and economic interactions of an economic unit, and also involves special techniques of generalization, grouping and calculations. The subject and method of accounting are interconnected.

The subject of accounting (in a general sense) is all its financial and economic activities, which are implemented through various operations and actions.

The subject and object of accounting are very interconnected, the object is a variety of types of property of the organization for its activities, financial and business operations, due to which it is possible to change the composition of the property.

Types of Accounting

The following types of accounting can be distinguished:

1. Administrative - information is collected, processed and provided for the needs of the actual management of the organization. The main points are the accounting and cost analysis of costs.
2. Management accounting is associated with information analytics for the organization’s executives.
3. Financial accounting - information on the income and expenses of the organization, on receivables and payables.
4. Tax accounting is a generalization and analysis of information in order to determine the tax base according to primary documentation.

Accounting functions

In addition to species, the main functions can be distinguished:

1. Controlling - control over the availability and safety of property items and cash.
2. Information - the most important function, its importance is that it is the primary source of information for all departments of the organization and its leaders.
3. Feedback - accounting conveys information.
4. Analytical - analysis of all organization structures, profit and loss to optimize performance.

Basic accounting methods

Above, we figured out what the method is, but in order to understand what methods modern accounting offers us, we will dwell on a detailed list of each of them.

So, accounting methods:

1. Documentation
2. Accounts
3. Double entry
4. Inventory
5. Rating
6. Costing
7. Balance
8. Reports

Documentation

Using a specific example, you can analyze in detail the smallest elements of accounting methods.

Accounting cannot be carried out without documents, which are written confirmation of the act of any business transaction. Documents in the organization go from their creation to sending to the archive and are carefully stored so that when missing economic property is discovered, it is possible to track its movement at the enterprise.

In any organization, various financial and business operations are performed daily, each of which must be documented, which contains all the information about the rights and obligations. Only correctly executed paper guarantees operations legal rights.

Consider the concepts associated with the characteristic of this accounting method:

Accounts

One of the methods of accounting is an account, which is a means of grouping and control over the changes of some objects. This is a special table with two sides, on the left - debit, on the right - credit.

The content of the accounts are divided into:

1. active - property is considered by composition and placement;
2. passive - accounting for property by its education.

Balance is the difference between expenses and revenues. On the active account - it is either in debit or absent. In a passive account, the balance is either in credit or absent.

There is also a combined method that includes the characteristics of both accounts and is carried out for a specific calculation.

In addition to balance sheet accounts, there is an off-balance group: it calculates the values ​​of the organization, which are not directly owned, but leased or stored.

Double entry

Another method of organizing accounting is double entry. It is such a data mapping in which each business transaction is displayed twice in the accounts: for debit of one and credit of the other, which are interconnected.

Elements of the accounting method:

• Correspondence - the relationship of two accounts, which is born with a double entry.
• Posting - a type of registration of the correspondence of an account when they record at a time the debit and credit of accounts. Simple posting - linking two accounts, complicated posting - linking more than two accounts.

Inventory

An example of an accounting method is inventory. For order in the accounting documents, the relevance and reliability of the entered and entered data, the organization is engaged in an inventory of property, which must be confirmed in writing - acts and bills. In this process, confirm the presence and condition of objects. Inventory should be carried out regularly and is one of the main accounting methods to ensure the financial stability of the enterprise.

The frequency of this event and the list of items to be checked is approved by the head, but there are cases when the inventory is carried out forcibly:

• if the property of the organization is leased, it is redeemed or put up for sale;
• restructuring or rebranding of the organization;
• if you have an annual accounting report;
• if the organization has discovered the fact of theft or damage to the financial and economic object;
• in case of emergency (fire, flood);
• if the organization is liquidated or goes bankrupt.

Rating

Assessment in accounting is the expression of the value of an object in monetary terms. In simple words, the characteristic of the accounting method by means of valuation is understood as the monetary value of the object, which is recorded in the documents.

Assessment of objects is made according to two principles:

1. The reality of the valuation is the actual value of the funds and their sources, in other words, the amount of money should correspond to the value of the object in fact. This principle requires accurate costing of accounting objects.
2. Unity of assessment - one and the same object of economic relations should be equally evaluated in any organization during the period of its presence at the stage of turnover. Unity is achieved through mandatory cost-fixing documents and costing.

Assessment Methods:

• Fixed assets - the valuation is shown in the financial statements at historical or residual value.
• Intangible assets - valuation at historical or residual value.
• Materials - are estimated at the actual purchase price or at the planned cost.
• Finished products - an assessment taking into account all the costs of manufacturing the product or at the prices that were set at a particular point in time.
• Accounts payable - an assessment of the amounts that were determined in the contract (purchase and sale, employment contract, etc.)
• Authorized capital - is estimated at the amount indicated in the documents of the organization, even if the authorized capital is not fully paid.
• Cash - reflected in the analysis of the financial report in national or foreign currency.

Costing

This accounting method calculates in monetary terms the value of accounting items and the way they are valued.

The subject of calculation is an object whose value is needed for the various needs of the organization.

All activities of the enterprise, all its financial and economic facilities and relations are subject to mandatory costing. If the organization acquires any means of production, it is necessary to calculate their cost, then in the manufacturing process identify the cost of the whole process. At the final stage of sales, they calculate the total cost of production and calculate the profit.

Thus, costing is one of the most important accrual methods in accounting, a necessary addition to valuation.

Balance sheet

The balance sheet is called the reduction of the final balances of all available accounts.

This accounting method is presented in the form of the following table:

The balance sheet is the currency. They are distinguished by 5 types:

1. Reporting - the amount per reporting number.
2. Opening - accounts of the organization at the initial stage of activity.
3. Liquidation - the balance that is available at the time of liquidation of the organization.
4. Separation - make up at the time of the division of the organization.
5. Unification - at the merger of two or more organizations.

Reporting

This is a set of all indicators that reflect the financial position of the organization. Also, these are property and financial results for the desired period of time.

Accounting statements are comprehensive information on the activities of all branches and divisions of an organization.

Reporting contains:

• balance sheet (form 1);
• accountant's report on profit and loss of the organization (form 2);
• addition to the balance sheet of the report;
• audit report.

The accounts are prepared by the accountant for one month, for one quarter and for one year. Monthly and quarterly reporting - subtotals.

The reporting year of the organization is from January 1 to December 31. For newly created - from the date of registration to December 31.