Accounting Level

Though entire accounting of financial transactions is just about debits and credit, there are different levels to which such accounting can reach. At lower levels, it is merely introduction, and understanding the concept of double entry. All that a person needs to know is which account to debit, and which account to credit. The thumb rule is, debit what comes in, and credit what goes out. But when cash comes in, corresponding physical asset does not go out. It is then difficult for people to understand this concept. Therefore, it is at this level, accounts learners begin to understand that credit in such cases is like an IOU issued in favor of the person who has invested something in the business.

The entry-level accounting involves preparing debit and credit vouchers, attaching to them relevant bills, and payment evidences. At times, these bills are filed separately as they may be required for some other purposes as well. These vouchers are then fed into computer software. Nowadays there are ample accounting software packages that are able to sort these voucher entries into debits and credits. These debits and credits are further classified under different groups that fall under Balance Sheet, and Profit and Loss Account. Effectively, any voucher content that is keyed in can be traced up to or back from these accounting statements. Earlier such postings were done manually. In addition to the cash related entries, there are journal entries. These may relate to accruals, or prepaid expenses. Or they may relate to purchases and sales on credit. Even depreciation entries are passed through journals vouchers. Tax related accounting is also part of these levels of accounting.

Cost accounting is a more analytical aspect of accounting. It involves assessing exactly what is the cost of producing a single item. Therefore, all administrative expenses, sales expenses, financial expenses that enable production and sale of a good contribute to the cost price of the good. And determination of this cost price is essential so that sale price can be determined in a way that the business does not run in losses.

There are accounting standards issued by professional bodies. Senior level accountants follow these standards and policies and guide lower level accounts clerks accordingly. At higher levels, analysis is what takes precedence over all these forms of accounting. Data in the accounting statements is analyzed to check whether cost of production is running high because of lack of mechanization, or because there is sudden spurt in prices of any raw material warranting increase in price of the good. For investors, the analysis of data about operations, profits, past and present trends, and new contracts, etc., also become important.