What is Accounting Skills?

Accounting Skills are the skills required to present business transactions comprising 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 outcomes in an optimum way.

Explanation

Accounting is a building block of all vital decisions of a business. It is the art of recording business transactions into books of accounts. Without appropriate books of accounts, it is impossible to ascertain various business parameters. 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, and tables prepared from accounting data. If any loophole is found in accounting, there are high chances of wrong business decisions. Hence, it is of utmost required to understand accounting skills.

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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 in accounting mean a set of skills related to the core knowledge of Accounting. Without that, it is impossible to account for anything in books of accounts. It includes Basic Accounting knowledge to Accounting for all special business transactions such as Accrual/Deferrals, DepreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more, Provisions, Year-end adjustments, etc. Type of Hard Accounting skills are a follow-

Domain Knowledge

Domain knowledge means knowledge of the core area of anything. In this prospect, an understanding of the basics of accountingBasics Of AccountingAccounting is the formal process through which a company attempts to present its financial information in a way that is both auditable and usable by the general public. read more must be taken. For Example, rules to the record journal entry, creating ledgers, bank reconciliationBank ReconciliationCustomers perform bank reconciliation to tally their records with their respective bank’s statements because there may be differences between the customer’s books of accounts and those of the bank.read more, Financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more, cash flow statementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more, etc

Professional Qualification

Over and above basic knowledge of accounting, it is crucial to know accounting of certain scenarios such as Accounting for mergers and acquisitionsMergers And AcquisitionsMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion.read more, consolidation of financial statements, accounting for employee benefits, accounting for financial instrumentsFinancial InstrumentsFinancial instruments are certain contracts or documents that act as financial assets such as debentures and bonds, receivables, cash deposits, bank balances, swaps, cap, futures, shares, bills of exchange, forwards, FRA or forward rate agreement, etc. to one organization and as a liability to another organization and are solely taken into use for trading purposes.read more, etc. Expertise in the above-stated areas comes via acquiring professional courses such as Chartered Accountant, MBA in Finance, etc.

Knowledge of Accounting Software

In the modern era, no manual transactions are recorded in the books of accounts. Think of Big Bazar or Dmart recording its Sales transactions manually in the 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 entries automatically.

Stay Up-to-Date

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 statute.

#2 – Soft Skills in Accounting

As per the dictionary meaning, Soft skills mean “interpersonal skills (personal characteristics) that enable the person to communicate/interact with another person effectively.” Soft skills in Accounting are an add-on to the hard skills of accounting. It allows an accountant to better presentation into books of accounts. Types of soft accounting skills are as follows-

Analytical Skills

  • Analyzing 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.read more and recording it accordingly is termed an 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 asset’s life 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.read more, and the chances of wrong decisions increases.

Communication Skills

  • To appropriately communicate all matters to top management and team members is necessary. Communication skill includes both written and oral communication. In the modern era, written communication emphasizes Email etiquette. 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 the date of submission of accounting data to the CFO/FM should be 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 be appropriately conveyed to team members and trained if required.

Industry knowledge

  • It is essential to know the industry for which accounting is 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. read more are prescribed. For example, it is essential to know that revenue generated only after a gestation period of 1 to 2 years in the construction business.Till that Revenue is recognized on the personage of completion basis, however, in a manufacturing concern, the full cycle is to be accounted for from Raw material purchase to Work in progress to Finished goods to Sales to Scrap, if any.

Management Traits

  • Management is not only restricted to managing Team members but also includes managing time, business resources, different business scenarios, etc. For example, any technical upgrade in accounting software is 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 will be done with minimal usage of business monetary and non-monetary resources considering that deployment will capture all business scenarios.

Importance

These are as important as bricks in a building. Without possessing those mentioned above soft and hard accounting skills, no non-specialist can 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 is advised to hand over the accounting work to one who possesses sufficient accounting skills.

Conclusion

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, and 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 and 2) hard skills and their importance. You can learn more about it from the following articles –

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