A Career in Financial Accountancy - Case Study Example

Careers in Accounting Careers in Accounting Top of Form Careers in Accounting Introduction: The advert is for the post of an assistant accountant forReed Accountancy. The job covers the following areas: general, sales and purchase ledgers, accounts preparation, help with payroll processing and its calculations, assisting with audits, assisting with financial reporting, accruals and prepayments. Also the candidate selected should possess some knowledge in drafting management accounts. General ledger is a book of final entry which contains a summary of all the transactions of a company in terms of cash or its equivalent. The transactions are recorded by offsetting debit and credit accounts. Income Tax Act and the Companies Act have laid down certain requirements on business organizations to put forward annual financial statements. These financial statements have to be prepared as per GAAP standards. What is a General Ledger The recording of accounts of a business using the double entry system of book keeping is done in a general ledger, which is also known as the nominal ledger. This is the principal book of entry and it includes accounts for items like current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Collected group of accounts supporting the items displayed in the main financial statement is shown in the general ledger. The transactions are recorded in the general ledger directly from the sales daybook, purchases daybook, cash book and general journals daybook. This ledger is generally supported by one or more subsidiary ledgers which give the details of the accounts posted. For instance an accounts receivable subsidiary ledger would give the information for every credit customer so that the balance in the customer's accounts can be easily tracked. The subsidiary ledger is then totaled and compared with the controlling account which is the accounts receivable in this case. This ensures accuracy and it is a part of the process of preparing a trial balance. (Professor Cram, 2008). The seven basic classes in which all accounts can be grouped are: 1. Assets 2. Liability 3. Owner's equity 4. Revenue 5. Expense 6. Gains 7. Losses The general ledger helps in deriving the balance sheet and the income statement. Each and every account in the general ledger may consist of one or more than one pages. Posting in general terms is the process of recording the credits and the debits in the general ledger. Also a column will display the running activity total (Professor Cram, 2008). Example of a general ledger entry: The above is the 'T' form of a general ledger. What is a Sales Ledger A salesledger incorporates the personal accounts of clients who have some sort of sales made on credit by the business. They are known as debtors. A sales ledger records information with regard to invoices issued, credit notes issued and payments received. As customers is the life-blood of any business it becomes a necessity for a business to main a sales ledger efficiently and accurately. What is a Purchase ledger A purchase ledger of any business contains the personal accounts of suppliers from whom the business has purchased on credit. Information with regard to invoices received, credit notes received and payments sent are recorded in this book. A purchase ledger invariably records all purchases made by a business. It supervises: The outgoings of a business. The amount owed to others by a business at any one time Theoretical need for these skills: Financial statements offer a synopsis of the financial condition of any business at any given time both in short and long term. All the related financial information of a business which is presented in a prepared manner and in a form easy to comprehend is known as the financial statements. The four basic financial statements are: 1. Balance sheet: shows the financial position or condition and reports on a company's assets, liabilities, and net equity at any given point of time. 2. Income statement: is the Profit and Loss statement which reports on a company's income, expenses, and profits. This statement gives information on the operation of a business. 3. Statement of retained earnings: indicates the alterations in a company's maintained earnings during the reporting period. 4. Statement of cash flows: displays the company's cash flow activities, particularly its operating, investing and financing activities. According to (Professor Cram, 2008) "The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Objectives of preparing the Trial balance (Reddy, T S, et all 2001, pp 3.1-3.2): The preparing of trial balance has the following objective: (ii) The trial balance enables one to establish whether the posing and other accounting processes have been carried out without committing arithmetical errors. In other works the trial balance to establish arithmetical accuracy of the books. (ii) Financial statement is normally prepared on the basis of agreed trial balance. Otherwise, the work may be cumbersome. Preparation of financial statements, therefore, is the second objective. (iii) The trial balance serves as a summary of what is contained in the ledger. The ledger may have to be seen only when details are required in respect of an account. (iv) Important conclusions can be derived by comparing the balance of two or more than two years with the help of trial balances of those years. (v) Thought trial balance, books of accounts are tested and it is only after this test the final accounts are prepared. Just as before issuing a driving license, a test is necessary and before taking a life insurance policy, a medical before preparation of final accounts which is done through trial balance. The primary function of accounting is to accumulate accounting data in a manner that the amount of profit made or loss suffered during a period can be determined. The manner in which the amount of profit or loss has been arrived at is disclosed in the statement of accounts, prepared at the end of the accounting year. The various items of income and expenditure which arose during the accounting period are detailed out therein, grouped under significant heads. It is also accompanied by a balance sheet, exhibiting assets and liabilities of the business as at the close of the period. In addition, for showing the nature of economic activity to which the account pertains, the revenue accounts as well as different sections in which it is set up are invariably headed as manufacturing trading and profit and loss account or simply as profit and loss account. These two statements i.e., trading and profit and loss account and balance sheet are prepared give the final results of the business. That is why both are collectively called final accounts (Reddy, T S, et all 2001, p 5.1). Thus, preparation of final accounts is the last step in the accounting cycle. In fact, final accounts include a number of accounts such as (i) Trading accounts (ii) Profit and loss account and (iii) balance sheet. Though balance sheet is a statement, for all practical purposes, it is treated as one of the final accounts (Reddy, T S, et all 2001, p 5.1). Once the "trial balance" is extracted 'errors' rectified, a trader prepares the "final accounts" so as to know the final results (i.e., net profit or loss) and financial position (i.e., assets and liabilities) of his business. Trading account and profit and loss account are prepared by transferring from the trial balance, all nominal accounts and accounts concerning goods by passing entries known as "closing entries". All remaining accounts viz., real and personal accounts pertaining to property, assets, debtors and creditors are just shown in a statement called balance sheet (Reddy, T S, et all 2001, p 5.1). Since the above mentioned documents are important for any company the person appointed as an accountant or assistant is expected to have good knowledge in the above said areas. A candidate who is selected after his/her graduation is assumed to possess all the above knowledge of basic accounting functions theoretically. He/she will be trained practically by the company which absorbs him/her. Apart from this the different skills required for the job is payroll processing. Payroll processing: Payroll is one of the basic parts of HR policies of any company. Employees are the backbone of all entities. Thus, it is very crucial for any business or organization, to make certain that their level of interest and enthusiasm is maintained. An employee will be satisfied and secured only when payment of salary and wages are made on time. Payroll processing suggests exact calculation of salaries or wages of employees who are employed, at different positions. The calculation of such salary or wage should take into consideration all the Statutory Compliance set by the Government. Payroll processing has become complex these days due to numerous statutory requirements, MIS requirements, calculations based on slabs and formulas and other HR policies. Thus, Payroll Processing and payment thereof has its own importance. Financial audit A financial audit is nothing but the review of the financial statements of a company or any other legal entity. Auditing results in the publication of an independent judgment on the accuracy and the truthfulness of the financial statements of a company. Purpose Financial audits has to be prepared to add credibility to the organization's management with regard to its financial statements and its assertions that the reports fairly represent the organization's position and performance to the firm's stakeholders in other words its share holders. Such audit has to be in conformity with generally accepted accounting principles (GAAP).' The gauge for 'fairly presented' is that there should be not more than 5% chance of audit risk, which means that the financial statements are not 'materially misstated'. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements. Theoretical importance of Accruals and Prepayments: The final accounts of any company have to display only true and fair view of the different incomes and expenses. Thus in order to show a more realistic view of the state of the business at year-end when final accounts are prepared, there are certain accounts, which have to be adjusted. The fact is that that the expenses or gains reflect the total payment or the amount received for the year. But it should also include those amounts, which are not yet paid or received, and those, which are paid or received for the following year. Thus the accounts will relate to the same time period covered by the Profit and Loss Account. This is known as the accruals concept. This concept states that when the profit and loss account of a particular year is being prepared only those expenses and revenues of that particular year are included whether paid/received or not. The studies undertaken in the 1st and 2nd year will help the students to know the basic concepts and the method of presenting the final statements or reports. This study helps in classifying the various accounts under their respective heads and placing them in the appropriate accounts. But since there is slight difference between theory and practical, the two year of study will not help in the practical aspects of maintaining accounts of a company. The company selecting such students for the job will give practical training and sometimes some companies also allow the employees to take up courses which may improve the work of the new appointee. Conclusion: Thus a career in accounting is not only interesting but it is also fetching. The various accounts and the reports that have to be prepared are worth a trial. A student selecting a career in accounting has a bright future and he/she can do well in their life but if they follow the basic rules. References: 1. "Presentation of Financial Statements" Standard IAS 1, International Accounting Standards Board. Accessed 24 June 2007. 2. Professor Cram. "Special Journals: Subsidiary Ledgers" College-Cram.com. 13 May 2008 3. Professor Cram. "Accounting Cycle: General Ledger Accounting" College-Cram.com. 13 May 2008 4. Reddy, T S, Murthy, A 2001, Financial Accounting, Margham Publications. Appendix: ASSISTANT ACCOUNTANT Recruiter Reed Accountancy Location Cheltenham, Gloucestershire Salary 17,000 - 19,000 per annum Sector Accountancy - Accounts Assistant Job Type Permanent Date 23 Mar Applications 2 Job ref no 17751669 Job Description Our Cheltenham based client is currently looking for an Assistant within the Accounts department that will be able to assist with the following duties: General Ledger, purchase and sales ledger Accounts preparation (up to trial balance) Assisting with Payroll processing and calculations Assisting with Audits Assisting with Financial Reporting Accruals and Prepayments This is an ideal opportunity for a candidate looking for achallenging role within a growing organisation, Person Specification Good Excel skills and all round IT knowledge Potential to learn how to draft Management Accounts Bottom of Form Read More