Accounting is the tranquility of a successful business

Accounting is the tranquility of a successful business

by Lucian Nedelcu – Expert accountant

Today we invite you to discuss about how accountancy and, implicitly, accountants can contribute in achieving balance and tranquility.

When talking about accounting, we do not refer strictly to the science called accounting, but more to the accounting profession, to the whole range of activities that basically start from there, from the key terms of the area (accounting, finance, taxation, financial and economic analysis, payroll, audit, accounting expertise, etc.).

When talking about accountants, we refer to all the activities that these professionals can do, no matter if they are accountants, economists, expert accountants, financial auditors, financial analysts, etc.

Our goal is to make you aware of the role of accounting, to understand a series of concepts/aspects and to change your life with their help, and why not, to become friends with the accountants.

Accounting has a well-defined role:

  • first of all, to provide viable solutions, the ultimate goal not being to prepare financial statements or to fill in documents, but to offer better information based on which people can make better decisions.
  • second of all, to protect the companies and its owners, administrators and users.

The accounting information is so important because it is used by all the market players: customers, competitors, employees, government/state, investment analysts, suppliers, creditors, managers, owners, and so on.

Many see in accounting something complicated, hard to understand, and in accountants those difficult and strict people. However, we must realize that each process, area or activity has at least one accounting component. And here we can take as an example:

  • a marketing or sales person who works with budgets;
  • a manager who must have knowledge of accounting because he works with financial reports that are based on accounting aspects.

Accounting itself is governed by balance, equality, and it is like the blood that flows into the whole body, and we know that cells will die without blood. Any process, activity has something related to accounting in it. Today, if accounting wouldn’t exist, nothing would exist, chaos would appear.

It is said that there is no escape from tax and death, so we all need accounting and accounting information.

Many people are wondering how to find a good accountant and probably some of you would like to know. What we can say is just that a good accountant speaks your own language, makes you understand what he says and gives you relevant information to make effective decisions.

The specialized information provided by a good accountant must be:

  • COMPARABLE – to be able to identify changes over time, performance evaluation over time;
  • EASY TO UNDERSTAND – clear and understandable to those requesting it;
  • RELEVANT – to be able to influence decisions, to give value to information;
  • RELIABLE – to reflect the real situation.

During our experience we had the opportunity to work for many clients, offering them consultancy on various professional areas, from accounting, taxation, financial and economic analysis, up to accounting expertise and financial audit. Many times we have been asked by clients: “Okay, I obtain profit, but where is my money, actually?” Accounting and financial reports can actually show where the money is, how much exactly was spent / invested and what needs to be done to make accurate and effective decisions.

And if you are still wondering how BALANCE and TRANQUILITY are related to ACCOUNTING, we can tell you that when the financial and accounting aspects are not properly organized, you will not be able to run your business / operations in optimal and efficient conditions. The tax authority will begin to send you all kinds of notifications, maybe even followed by inspections, the creditors will bother you, the decisions will not be correct and the business will die.

That’s why it is good to remember: it is better to visit the accountant, the lawyer or the doctor before something happens and not after. Some say this also applies for priests, but here we let you say if it is so or not…

We would be glad to discover the “accountant” in you, the one who thinks in calculations and adapts to sometimes impossible situations, being in that state that gives you the tranquility of your business and your activities.

Because we want to make the financial and accounting concepts easier to understand even if you do not have specialized studies, we started the #DEXFinanciar, #DEXFiscal and #DEXContabil series, where we explain the specific words in the field and also those used in our articles.

We invite you to find more details on our Facebook page.

Glossary:

Accounting – is a science which deals with the measurement, evaluation, knowledge, management and control of assets, debts and equity, as well as the results obtained from the activity of individuals and legal entities.

Its purpose is to ensure the timely and systematic registration, processing, disclosure and storing of the information related to the financial position, financial performance and cash flows, due to internal requirements and also in dealing with existing and potential investors, financial and trade creditors, customers, public institutions and other users.

(Accounting Law no. 82/1991, republished in June 2007, art. 2, para. (1)).

Financial accounting – registers the exchanges (flows) between an enterprise or an organization and its economic environment, expressed in the published financial statements for financial markets.

Management accounting – is an internal, non-standardized accounting for managers. This type of accounting examines the organization’s economic performance through costs.

(Management Accounting – Henri Bouquin, Iasi, TipoMoldova Publishing House 2004, p. 37)

Financial statements – Balance sheet, profit and loss account, statement of changes in equity, cash flow statement, explanatory notes to annual financial statements.

Balance sheet – is the synthetic accounting document that shows the entity’s assets, debts and equity at the end of the financial year, as well as in other statutory situations.

On the balance sheet, asset and debt items are grouped by category and liquidity, and also by category and chargeability:

  1. Asset – is a resource controlled by the entity as a result of past events, which is expected to generate future economic benefits to the entity and whose cost can be measured reliably;
  2. Debt – an entity’s current obligation arising from past events, whose settlement is expected to result in an outflow of resources embodying economic benefits;
  3. Equity – represents the residual interest of shareholders in the assets of an entity after deducting all its debts.

(Accounting regulations complying with the European directives approved by OMFP no. 1752/2005, Georgeta Petre, Alexandra Lazar, Elena Iordache, Bucharest, Irecson Publishing House 2006, p. 25)

Cost – 1 amount of money spent on producing or buying a good, performing a work, providing a service, etc. 2 (In the phrase) Total expenses of a family for food and non-food goods, as well as for the services used in a specified period. 3 (In the phrase) Price of ~ Total expenses needed in production for the manufacture of a good. 4 (In the same phrase) Amount of money paid for a good for the purpose of reselling. 5 (In the expression) To sell a good on ~ or at the price of ~ To sell a good without commercial addition. 6 (In the expression) To sell under the ~ To sell a good at a price lower than the cost price. (https://dexonline.ro/definitie/cost)

Profit and loss account – a synthetic accounting document that refers to the cumulative turnover from the financial year of the income and expenditure accounts and that reflects the size and structure of the result. (Introduction to Accounting – Costel Istrate, Iasi, Polirom Publishing House, 2002, p. 63)

Expenditures of economic entities – are the sums or the amounts paid or payable for: consumption, work performed and services provided by the entity, staff costs, legal or contractual obligations.

Expenditure also includes depreciation and provisions made, the value of ceded, destroyed or missing assets, or other consumption related to extraordinary events.

Income of economic entities – are the sums or amounts received or receivable from: deliveries of goods, work performed, services provided and the benefits the entity agreed to receive; the execution of a legal or contractual obligation from third parties, the stored production, the immobilized production, the decrease or cancellation of provisions, the sale of the ceded assets and other extraordinary operations.

(Romanian Financial Accounting – PhD Prof. IACOB PETRU PÂNTEA, Prof. GHEORGHE BODEA, Intelcredo Publishing House, March 2006)

Result – is a positive value called profit or benefit, when income is greater than spending, or a negative value called loss, in the other case.

(Financial Accounting Vol I – FELEAGĂ N., IONAŞCU I., Economic Publishing House, Bucharest)

Accounting specialists and assimilated accountants – Accounting specialists and their assimilates who keep records of an enterprise’s financial transactions and verify the accuracy of documents and records relating to these transactions. (https://www.rubinian.com/cor_5_ocupatia.php?id=3313)

Account – is the specific, usual method of accounting, with which is ensured the reflection in value expression (sometimes quantitative) of the existence, movement and final situation, on patrimonial items. The account appears as a pattern of systematization for existence (initial state), change of direction against increase or decrease and final state.

(Accounting and Taxation of Microenterprises – PhD Lecturer GHEORGHE POPESCU, PhD student VERONICA POPESCU, p. 44)

Cash flow – the cash accounting provides evidence of the existence and movement of shares held by the affiliated entities, of other short-term investments, cash and bank balances, short-term bank loans and other cash stocks.

(Accounting Regulations Complying with the European Directives Approved by OMFP no. 1752/2005, Georgeta Petre, Alexandra Lazar, Elena Iordache, Bucharest, Irecson Publishing House 2006, p. 319)

 

 

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Lucian Nedelcu
Lucian Nedelcu, Exprom General Manager, has over 25 years of experience in financial, accounting and federal tax consultancy. In formal training and current activity, he is qualified as a tax consultant, accounting expert, with tasks including financial controling, internal and financial audit, as well as supervising all Exprom activity.