What Is Accounting?

The purpose of accounting is to provide information that will help you make correct financial decisions. The accountant's job is to provide the information needed to run a business as efficiently as possible while maximizing profits and keeping costs low.

Quick Tip: Finding an Accountant: Hiring a professional and ethical accountant to aid in your business operations can be critical to the success of your company. Talk with your colleagues. Determine who they recommend. Ask if they are happy with their accountant. Obtain the names of several accountants who work well with health care providers. Meet with a few accountants before making a final choice so that you know your options and can select one whose experience and work style will be best suited to your needs. If you cannot obtain useful information for your colleagues, some local chapters of the American Institute of CPAs offer referral services which can help with this.

Accounting plays a role in businesses of all sizes. Your kids' lemonade stand, a one-person business, and a multinational corporation all use the same basic accounting principles. Accounting is legislated; it affects your taxes; even the president plays a role in how accounting affects you. The list goes on and on.

Accounting is the language of business. It is the process of recording, classifying and summarizing economic events through certain documents or financial statements. Like any other language, accounting has its own terms and rules. To understand how to interpret and use the information accounting provides, you must first understand this language. Understanding the basic concepts of accounting is essential to success in business.

Different types of information furnished by accountants are shown in Figure 1.1 below.

Figure 1.1

Types of Information Provided by Accountants

Information prepared exclusively by people within a firm (managers, employees, or owners) for their own use Financial information required by various government agencies such as the Internal Revenue Service (IRS), Securities and Exchange Commission (SEC), and the Federal Trade Commission (FTC) General information about companies provided to people outside the firm such as investors, creditors, and labor unions

Accounting and Bookkeeping

Bookkeeping procedures and a bookkeeper's records keep track of business transactions that are later used to generate financial statements. Most bookkeeping procedures have been systematized and in many cases can be handled by computer programs. This is particularly true in health care providers' businesses. Bookkeeping is a very important part of the accounting process, but it is just the beginning. There is currently no certification required to become a bookkeeper in the United States. Some proprietary bookkeeping software programs have their own certification programs. Some of these programs are online and available to any interested person. Anyone using a particular bookkeeping software would likely benefit from the investment in time and money to become certified.

Accounting is the process of preparing and analyzing financial statements based on the transactions recorded through the bookkeeping process. Accountants are usually professionals who have completed a bachelor's degree in accounting, and often have passed a professional examination, like the Certified Public Accountant Examination, the Certified Management Accountant Examination, or Certified Fraud Auditor Examination.

Accounting goes beyond bookkeeping and the recording of economic information to include the summarizing and reporting of this information in a way that is meant to drive decision making within a business.

Who Uses Accounting Information?

In the world of business, accounting plays an important role to aid in making critical decisions. The more complex the decision, the more detailed the information must be. Individuals and companies need different kinds of information to make their business decisions.

Let's start with you as an individual health care provider. Why would you be interested in accounting? In addition to the benefits to your business, accounting knowledge can help you with investing in the stock market, apply for a home loan, evaluating a potential job, balancing a check book, and starting a personal savings plan, among other things.

Managers within a business also use accounting information daily to make decisions although most of these managers are not accountants. Some of the decisions they might make for which they will use accounting information are illustrated in figure 1.2.

Figure 1.2

Areas in Which Managers Use Accounting Information

Marketing (Which line of services should the company emphasize?) Production (Should the company provide services in one location or open several locations?) Research and Development (How much money should be set aside for new skills development?) Sales (Should the company expand the advertising budget and take money away from some other part of the marketing budget?)

Without the proper accounting information these types of decisions would be very difficult, if not impossible, to make. Bankers continually use accounting information. They are in the business of taking care of your money and making money with...