Understanding Business Accounting: Principles and Practices

Accounting Fundamentals

Businesses rely on accounting information for decision-making. Accounting is an economic science that studies business assets, applying standards and scientific principles to record financial information. This involves statically observing a company's financial status and assets at a given time.

Accounting provides crucial information for informed decision-making. Its importance lies in generating and delivering quality data that accurately reflects the company's financial situation. The primary purposes of accounting are:

• To provide managers with information for decision-making and future planning.
• To enable owners to verify the protection of their interests.
• To inform employees about the company's performance, which affects their job security.
• To assure creditors of the company's solvency and ability to repay debts.

Accounting Standards and Practices

To ensure consistency and reliability, accounting firms follow specific rules and use standardized instruments. Recorded information must be verifiable and interpretable by all users. This requires homogeneity, achieved through common operational rules that facilitate interpretation and comparison of external reports. Accounting standards aim to establish agreed-upon designations and identifications for assets and liabilities.

The standardization of assets and liabilities is reflected in a chart of accounts. In Spain, the Institute of Accounting and Auditing (ICAC) has established a comprehensive General Chart of Accounts (PGC), mandatory for all companies. The PGC includes representative accounts for all assets and liabilities, specifying each account's name, code, definition, and accounting movements.

Bookkeeping Requirements

Mandatory Records

Businesses are required to maintain organized records appropriate for their activities, enabling chronological tracking of business operations. Essential records include an inventory book, annual accounts, and a daily journal.

Entrepreneurs must register these books at the commercial registry of their registered office for official sealing. All books and accounting documents must be kept free of blanks, cross-outs, or overwriting. Essential records include paper correspondence, inventory book, journal, and ledger.