The Big R-Book

PART VIIntroduction to Companies

A company or a business is an entity that will employ capital with the aim of producing profit. This commercial activity necessarily produces a variety of financial flows. Probably the process that is themost intimately related to all those financial flows. Accounting includes the systematic and comprehensive recording of transactions. The concept “accounting” also refers to the process of summarizing, analysing and reporting these transactions to the management, regulators, and tax offices.

Accounting is one of the quintessential functions in any business of any size. The accounting department will also vary in function of the complexity of the business and fiscal environment. States want to ensure a comfortable inflow of money and the accounting process is used to make sure that private enterprise pays for the state organization. While taxation is still a matter that is very much linked to the relevant country, the European Union lead to harmonisation in legislation. In most countries and companies, accountants use a set of rules that is called “generally accepted accounting principles” (GAAP). GAAP is a set of standards that describe how the assets can be valued and summarized in the balance sheet, how problems like outstanding debt have to be treated, etc. It is based on the double-entry accounting, a method which enters each expense or incoming revenue always mirrored in two places on the balance sheet.