Decoding Accounting: Essentials for Business Success

Accounting Information

Accounting is an open system that processes information generated by a company and its actions. This data should be sorted, graded, processed, synthesized, and made available to relevant sectors as needed.

Objectives of Accounting

• Analyze address efficiency.
• Inform decisions regarding company policies (sales, purchasing, personnel, etc.).
• Determine tax burden and social responsibility.
• Legitimize the distribution of results.
• Guide investment and credit decisions.
• Inform decisions on rates and prices.

Qualities of Accounting Information

• Relevance
• Objectivity
• Systematic and Organized
• Timely and Accurate
• Integrated and Complete
• Sufficient and Clear
• Productive and Profitable

Financial Statements

There are four main financial statements:

• Balance Sheet: Informs the components of assets, liabilities, and owner's equity.
• Income Statement: Reports the results of a given period (e.g., total sales, cost of goods sold, and resulting profit or loss).
• Statement of Changes in Equity: Compares the composition of owner's equity from the previous year with the current year.
• Statement of Cash Flows: Justifies the cash and bank account balances, showing the origin of funds from the previous period and how the current balance was reached.

Key Accounting Terms

Assets: A set of resources and rights owned by the company.

Liabilities: A set of debts and obligations (debt capital).

Owner's Equity: The owner's investment in the company.

Fiscal Year: A 12-month period used to divide a company's activity for analysis. This period reveals the results (profits or losses) of operations.

Current Assets: Assets expected to be converted into cash within 12 months (e.g., merchandise receivable within 5 months).

Non-Current Assets: Assets that would take more than 12 months to convert into cash (e.g., equipment with a 15-month payment plan).

Classification of Results

• Ordinary Results: Reflect the usual costs, revenues, and expenses of the company.
• Extraordinary Results: Atypical and exceptional findings revealed during the fiscal year, which may not have been frequent in the past and are not expected to have similar behavior in the future.

Chart of Accounts and Accounting Practices

Chart of Accounts: A sorted and consolidated list of all accounts used by the company to record its operations.

Account Coding:
Decimal System: Allows the chart of accounts to expand with new accounts as needed (e.g., for new goods or operations).
Alpha-Numeric System: Another coding system that can be used.

Account Manual: Specifies the concepts included when debiting and crediting each account in the chart of accounts. This standardizes accounting practices, reduces reliance on personal criteria, and facilitates training for new employees.

Accounting Books and Files

Required Books: Orderly records reflecting the accounting aspects of business activities (e.g., inventories, balances, daily transactions, and partnership agreements).

Occasional Books: Facilitate information storage and are typically maintained concurrently (e.g., customer records, cash register, salaries, purchases, and sales).

Files: An ordered set of documents preserved for a specific purpose (historical or legal). In business, files are organized according to established standards and criteria. Files can be organized by topic, date, vendor, or customer.