What Is Accounting? | Overview, Phases, Skills

Published on May 05, 2023

Imagine a world where businesses had no means to understand their financial position. Such a scenario would be chaotic, to say the least. Everyone would be navigating the world of finance completely blind. Business owners would make choices based on gut feel and guesswork. Fortunately, the field of accounting provides the necessary framework to navigate the complex entrepreneurship landscape.

So what is accounting? Accounting, often referred to as the “language of business,” is a systematic process of analysing and interpreting financial information. Accountants are responsible for making sure that their organisation stays afloat despite downturns, setbacks, and loans. If anything, it’s a prestigious and rewarding profession.

Basic Accounting Explained

Accounting is a multifaceted discipline that involves the systematic recording, analysis, summarisation, and interpretation of financial transactions and information. Some types of accounting are financial accounting, management accounting, and cost accounting. By providing a clear and accurate picture of an entity’s financial position, accountants serve as the backbone of businesses, governments, and individuals alike. A myriad of job titles exists within the accounting profession, each requiring a unique set of skills and knowledge. Entry-level roles (e.g., staff accountant, junior financial analyst) offer a solid foundation for those new to the field. Advanced career paths (e.g., tax specialist, internal auditor, forensic accountant) often require specialisation but can lead to managerial or executive positions, such as chief financial officer (CFO).

The 4 Phases of the Accounting Cycle

Giving the job description of an accountant isn’t enough to answer the question “What is accounting?” You need to understand the nitty-gritty of the profession. See what accountants do on a daily basis in the workplace:

1. Recording

Accurate and timely documentation of financial transactions is non-negotiable for businesses in Australia. By properly documenting each transaction, business owners can ensure the integrity of their financial information, which is essential for decision-making, performance evaluation, and regulatory compliance.

Source documents (e.g., invoices, receipts, purchase orders) serve as evidence for each transaction and must be kept organised and readily accessible for reference. Having valid copies of these files also reduces the risk of error and discrepancies in the accounting process.

Transactions are recorded in journals using either a single-entry or double-entry bookkeeping system. You need a built-in system of checks and balances to ensure the reliability of the books. Adjusting entries may also sometimes be necessary.

2. Classifying

A chart of accounts is a comprehensive list of all the accounts used by a business to classify its financial transactions. It serves as a framework for organising and reporting financial data. It’s typically structured in accordance with accounting principles and industry-specific guidelines.

After transactions have been classified, they are posted to the general ledger (a compilation of all the accounts). It’s essentially the source of truth for all financial information. Afterward, accountants prepare a trial balance to ensure veracity.

3. Summarising

Simply put, the summarising phase just means condensing the classified financial data into comprehensive financial statements. These statements provide stakeholders with a clear and concise overview of an organisation’s financial position, performance, and cash flows.

Stated differently: These presentations tell others if a business is financially sound or not. Stakeholders find out how a company’s equity has been affected by factors such as profits, losses, and dividend distributions.

4. Interpreting Financial Information

With financial statements in hand, bookkeepers and accountants extract valuable insights which could be related to performance, trends, financial ratios, and projections, among others. Actionable insights and recommendations must then be presented to capitalise on opportunities and address potential challenges immediately.

Core Skills of an Accountant

Being a good accountant demands a unique blend of technical expertise and interpersonal abilities. You can’t just be an armchair expert when you’re interacting with diverse stakeholders and clients.

Hard skills encompass the technical and specialised knowledge required to perform accounting tasks effectively. These skills are typically acquired through formal education, certifications, and on-the-job experience.

Soft skills, on the other hand, involve the personal attributes and interpersonal abilities that contribute to your overall effectiveness in the workplace. While some soft skills may come naturally, others can be developed and refined over time through conscious practice and real-world experience.

Accounting Hard Skills	Accounting Soft Skills
Financial reporting Taxation Financial analysis Budgeting and forecasting Cost accounting Internal controls Financial modelling Accounting and bookkeeping software proficiency Regulatory compliance	Effective communication Problem solving Analytical thinking Attention to detail Time management Adaptability Teamwork Ethical decision-making Leadership Client relationship management

Apply Accounting to Your Day-to-Day Life

The field of accounting is undeniably dynamic. There are many specialisations to choose from; taxation regulations change every year; more and more businesses in Australia need help with their finances. There’s just so much to learn and explore.

If you’re looking for financial management services in the Southern Highlands of Australia, The Bookkeeping Studio is well-equipped to handle all your accounting needs. We’re experienced. We’re updated. But most of all, we make you a priority. We want your business to succeed just as much as you do. Feel free to get in touch with us today.

About the Owner

Hey, my name’s Bindi Gethen! I’m the founder of The Bookkeeping Studio in Australia. With over 15 years of experience in the industry, I have a deep understanding of the challenges that small and medium-sized business owners face when it comes to managing their finances.

I am passionate about empowering my clients with the financial information they need to succeed. My team and I pride ourselves on our commitment to exceptional value, accuracy, and confidentiality. Our virtual bookkeeping services include payroll, budgets, and management reporting, among others.

Not to toot our own horn, but we can assure you that you won’t find a bookkeeping partner like us anywhere else in the Southern Highlands.