If between one acÂcounting period and another a company's net worth grows, then during that period the company has made money; if its net worth becomes less, the company has lost money or has paid out its profits. It is not possible to tell what a comÂpany is worth merely from how much cash and other assets it has. That is one of the important things accounting has taught business over the course of the years. Suppose a publisher of magazines sells a million subscriptions for $3.00 each and takes in $3,000,000, which he has in cash in the bank. It might seem that he has an income of $3,000,000 from this, but the accountant shows that it is not so; in fact, the $3,000,000 goes on the publisher's balance sheet as a liability, not as an asset, even though it is cash in the bank. That money beÂlongs to the subscribers until the pubÂlisher has finished sending them their magazines. Every time he sends each subscriber one issue of the magazine, the accountant takes 2 of the $3,000,- 000, or $250,000, and shows it as inÂcome. The rest still is owed to the subscribers. Such money is called deÂferred income, and cash that is actually on hand but must be held for a particuÂlar purpose is called a reserve. Again, suppose a man buys a truck and goes into the trucking business.
The truck cost him $4,000. At the end of the year, he has taken in $10,000 from his charges for trucking, and has spent only $5,000, which makes it seem that he has a $5,000 profit. But the accountant knows that in four years the truck will wear out and he will have to buy anÂother one. So the accountant takes off one-fourth of the $4,000 he spent for the truck, and reduces his profit by $1,000. That is called depreciation. The basic principles of accounting are quite simple, but the businesses it serves have become so complex that years of study are required to learn the profession well. A young man who wants to be an accountant, after studying in college, usuÂally works in the offices of an experiÂenced accountant as a "junior." He does not make a high salary as a junior, but he keeps on learning until he can himÂself become a Certified Public AccountÂant and open his own office. Many acÂcountants specialize, just as doctors do, on one or more particular phases of acÂcounting, spending most of their time as cost accountants or as consultants in some business or profession. auditing Every accountant is an auditor. In one sense, however, auditing is a special branch of accounting.
The auditor examÂines the accounts of a company to make sure they are correct. This is important in government organizations from the mighty Federal Government of the United States down to the tiniest town, because taxpayers want to be sure their money is being spent honestly and inÂtelligently. It is important in businesses, because the stockholders, who are the real owners, turn the control over to just a few persons-directors and officers- and they too want to know that their investment is being protected. When an accountant makes a careful audit, he investigates everything personally. If the company's records show that it has a million dollars worth of merchandise on hand to be sold, the accountant goes and looks at it. If the company's books show that certain perÂsons owe it money, the accountant "veriÂfies" these accounts-that is, he gets in touch with the persons concerned and finds out from them that they really do owe the money.
Years ago, before accounting was developed to its present state, it was not unusual for investors in a business to be cheated by the manÂagers of the business. Today that has been stopped, due to accounting. cost accounting The cost accountant analyzes the money a company is spending so that he knows exactly how much it costs the company to perform every operation of its business. For example, if the comÂpany is manufacturing chewing gum, he will tell them not only that each piece of chewing gum costs them, say, one- fifth of a cent; but exactly how much every operation that goes into the makÂing of the chewing gum costs, down to hundredths or thousandths of a penny. Manufacturers in particular want to know this, so they will know how much to charge for their products to give them a fair profit. In addition, the cost acÂcountant is often able to point out savÂings that will allow them to increase their profits and reduce their selling price to the public.
The fact that Americans can buy so much good merÂchandise at such low prices is in many cases due to savings that have been pointed out by accountants. In some unÂusual cases, an accountant has saved a manufacturer money by raising the level of a workman's bench a few inches so that the workman would not have to stoop so low to get to his work, and would not become so tired and work less well toward the end of the day; or by spacÂing machines differently to make them more convenient; or by showing that the cost of shipping raw materials to the factory would make it worthwhile to build another factory closer to where the materials are; or in any of thousands of other ways.
David is the author of many articles including Best Friend Quotes and also the author of Best life quotes
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