5.1. Accounting
Accounting
Accounting may be defined as the information system that identifies, records, and communicates the economic events of an organization. Simply stated, the accountant selects financial transactions (identifies); records, classifies and summarizes these transactions (records); and prepares financial reports, analyzes, and interprets them for users (communicates).
Financial Accounting
Financial accounting is the process of recording, classifying, and summarizing economic events that include revenue (money taken in), expenses (the cost of everything required to operate the business), profit (what remains after all the expenses are paid), assets (items owned by the business), liabilities (amounts the business owes), and owners’ equity (the difference between assets and liabilities is equal to the claim that owners have on the assets). This process that leads to the preparation of financial statements.
Cost Accounting
Cost accounting focuses on classifying, recording, and reporting only business expenses. Involves the determination and control of the costs.
Tax Accounting
Tax accounting deals with tax forms, payments, and documents required by the government. For foodservices operations, this may include such government levies as income taxes, sales taxes, and payroll taxes.
Auditing
Auditing is the branch of accounting that is concerned about the accuracy of financial reports, and the auditors are individuals who conduct independent verification of business’s financial records. This process is called audit and has the purpose of pointing out weaknesses and/or irregularities and to prevent accounting fraud.
Managerial Accounting
Managerial accounting is the branch of accounting where transactions are recorded and analyzed for the purpose of making management decisions. To practice, a person needs to be truly knowledgeable about basic accounting principles and about the segment of the industry that he/she is working.
Large organizations where foodservice is but one on several departments, such as hospitals, colleges, universities, and hotels, have their own accounting or finance departments. In these situations, the foodservice manager works closely with the CFO (chief financial officer) to develop a system of records and reports most suitable to the needs of the operation.
The Accounting Formula states that for every business Assets = Liabilities + Equity.
This formula forms the foundation of the balance sheet (the financial summary of the health of the business on a given date) and the income statement (the financial report that includes the revenues, expenses, and the net income over a period of time). (Gregoire, 2017)
