What is Accounting Skills?
Accounting Skills are the set of skills required to present business transactions comprising of financial and non-financial in the books of accounts as per prescribed Standards of Accounting (US GAAP, IFRS, Ind AS) and as a part of legal compliance and analysis of business outcome in an optimum way.
It is an art of recording business transactions into books of accounts. Without appropriate books of accounts, it is not possible to ascertain various parameters of the business. Such parameters include- profitability, growth, variance, budgeting, planning, sales forecast, tax calculation, etc. The top management takes all critical decisions based on data presented on charts, graphs, pivots, tables prepared from accounting data. Accounting is a building block of all vital decisions of a business. If any loophole is found in accounting, high chances are there of wrong business decisions. Hence, it is of utmost required to understand accounting skills.
Types of Accounting Skills
A skill could be further divided into two types – soft skills and hard skills.
#1 – Hard Skills in Accounting
Hard skills of accounting mean a set of skills related to the core knowledge of Accounting. Without that, it is not possible to account for anything in books of accounts. It includes Basic Accounting knowledge to Accounting for all special business transactions such as Accrual/Deferrals, Depreciation, Provisions, Year-end adjustments, etc. Type of Hard Accounting skills are a follow-
Domain knowledge means knowledge of the core area of anything. In this prospect, understanding of the basics of accounting must be taken. For Example, rules to the record journal entry, creating ledgers, bank reconciliation, Financial statements, cash flow statementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities., etc
Over and above basic knowledge of accounting, it is crucial to know accounting of special scenarios such as Accounting for mergers and acquisitions, consolidation of financial statements, accounting for employee benefits, accounting for financial instruments, etc. Expertise in above-stated areas comes via acquiring professional course such as Chartered Accountant, MBA in Finance, etc
Knowledge of Accounting Software
In a modern era, no manual transactions are recorded in the books of accounts. Think of Big Bazar or Dmart recording its Sales transactions manually in Sales register with a pen. It’s impossible due to the high volume of business transactions. Hence, it is necessary to understand accounting software, which automatically captures sales transactions from vouchers and generates sales entry automatically.
Up-to-date in terms of changing legal provisions by the government. For example, in India, previously, Accounting was done considering Accounting Standards. However, new Ind AS came into the picture for business falling into stipulated criteria. An accountant needs to know all the changes and their respective impacts on books of accounts. Else, the business might face litigations from the government for non-compliance with the statue.
#2 – Soft Skills in Accounting
As per dictionary meaning, Soft skills mean “interpersonal skills (personal characteristics) that enables the person to effectively communicate/interact with another person.” Soft skills of Accounting are an add-on to hard skills of accounting. It allows an accountant for better presentation into books of accounts. Types of soft accounting skills are as follows-
- Skill to analyze any business transactionBusiness TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements. and record it accordingly is termed as analytical skill. For example, a business transaction is of repair cost on Asset. Now in Accounting Standards, it is stated that repair cost is to be capitalized if such cost increases the life of the asset and gives future benefits. However, it has to be expensed out if it is a normal repair cost for the breakdown of Assets.
- In this scenario, it is the Analytical skill of an Accountant to determine and analyze the type of business transaction as capital expense/ Expensed out to Revenue. If such a decision is incorrect, It will hamper the profitability of the businessProfitability Of The BusinessProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance., and chances of improper decisions increases.
- To appropriately communicate all matters to top management as well as team members, is very necessary. Communication skill includes both written and oral communication. In the modern era, written communication emphasis on Email etiquettes. It is essential to know whom to keep in “TO,” “CC,”/” BCC.” The escalation hierarchy should be clear to complete work on time. Any change in date of submission of accounting data to CFO/FM should to precisely communicated to the team.
- In the case of Oral communication, Videoconferencing and telephonic conversation are of more importance. Preparation of MOM (Minutes of the meeting), greetings, line testing, etc. to be kept in mind. Any changes in the Standard of Accounting should to appropriately conveyed to team members and trained if required.
- It is essential to know the industry for which accounting is to be done. Because for different industries, different sets of accounting rulesAccounting RulesAccounting rules are guidelines to follow for registering daily transactions in the entity book through the double-entry system. Here, every transaction must have at least 2 accounts (same amount), with one being debited & the other being credited. are prescribed. For example, in the construction business, it is essential to know that revenue generates only after a gestation period of 1 to 2 years.
- Till that Revenue is recognized on the personage of completion basis, however, in a manufacturing concern, the full cycle is to be accounted from Raw material purchase to Work in progress to Finished goods to Sales to Scrap, if any.
- Management is not only restricted to managing Team members but also includes managing time, business resources, different business scenarios, etc. For example, for any technical upgrade into accounting software, is it required to boost the morale of team members for accepting the new change.
- Also, it is to be taken care that deploying new software gets done within a specified time by taking regular follow-ups with the vendor. The new deployment is to be done with minimal usage of business monetary and non- monetary resources considering that deployment will capture all business scenarios.
These are as important as bricks in a building. Without possessing above mentioned soft and hard skills of accounting, it is not possible for any layman to record the business transactions in the books of accounts. If anything wrong is accounted for, it ultimately leads to an inaccurate and improper representation of scenarios of business. It directly impacts key business strategies. Hence it advised to handover the work of accounting to one who possesses sufficient accounting skills.
Accounting skills are not something everyone possesses. It is required to obtain the professional qualifications to attain a proficient level of knowledge in accounting and secure business from wrong decision making. Also, knowledge of technology, accounting software, the security of accounting data, change/modify/display of accounting data, access management is a must in the present era along with domain experts in accounting.
This has been a guide to What is Accounting Skills & its Definition. Here we discuss the two types of accounting skills 1) soft skills 2) hard skills and its importance. You can learn more about from the following articles –