What Does Your Accountant Do ?

Probably the first thing you think of is that accountants keep the books — they keep the records of the financial activities of the business. But accountants perform other very critical, but less well-known, functions in a business:

Accountants carry out vital back-office operating functions that keep the business running smoothly and effectively — including payroll, cash inflows and cash payments, purchases and inventory, and property records.

Accountants prepare tax returns, including the federal income tax return for the business, as well as payroll and property tax returns.

Accountants determine how to measure and record the costs of products and how to allocate common costs among different departments and other organizational units of the business.

Accountants are the professional profit scorekeepers of the business world. They prepare reports for the managers of a business, which keep managers informed about costs and expenses, how sales are going, whether the cash balance is adequate, what the inventory situation is, and, the most important thing — accountants help managers understand on the reasons for changes in the bottom-line performance of a business.

Accountants prepare financial statements that help the owners and stockholders of a business understand where the business stands financially. Stockholders wouldn't invest in a business without a clear understanding of the financial health business, which regular financial reports (sometimes called the financials) provide.

Accountants provide the critical numbers to help business managers make good decisions, which keep a business on course toward its financial objectives. Accounting also involves bookkeeping, which refers to the painstaking and detailed recording of economic activity and business transactions. However, accounting is a much broader term that refers to the design of the bookkeeping system. It addresses the many problems in measuring the financial effects of economic activity and events and then communicating these economic measures of value and performance to non-accountants in a clear and concise manner — a diverse range of people need this accounting information to make good economic decisions.

Accountants design the internals controls in an accounting system, which serve to minimize errors in the large number of entries that a business records over the period. The internal controls that accountants design can detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds. In accounting, internal controls are the ounce of prevention that is worth a pound of cure.

Seldom does an accountant prepare a complete listing of all activities that took place during a period. Instead, he or she prepares a summary financial statement, which shows totals, not a complete listing of all the individual activities making up the total. Managers may occasionally need to search through a detailed list of all the specific transactions that make up the total, but this is not common. Most managers just want summary financial statements for the period — if they want to drill down into the details making up a total amount for the period, they can ask the accountant for this more detailed backup information. Also, outside investors usually only see these summary-level financial statements.