Accounting 101

Accounting is the classification, validation, and documentation of Financial Data of a business. It has methods, rules, nomenclature, and procedures that are used to insure consistency. This consistency must be adhered to as it is the Language of Business Communications.

Accounting is a responsibility. Information is communicated and archived for internal and external business participants. The persons entering or reporting on its information are accountable for how they utilize it.   For Accounting Information to be useful, it must be consistent in form, inputted in a timely and routine basis, verifiable and supported with independent documentation, and also unambiguous.

Many user rely on this accounting information for diverse purposes. If the rules and the classifications are followed, accounting information can be used to make decisions and be an efficient method for communication and planning across areas.  It can answer the following questions for stakeholders:

      • How much is available?
      • What has been purchased?
      • Who has been paid?
      • Who has charged me?

Accounting is the method of recording. An Accounting Information System is a tool to accomplish this. If a financial activity is not recorded in the Information System, it is not recognized as a part of the Operations of the Organization. This adherence to proper recording of the activity is part of the Planning and Control process. Data is accumulated so that reports can be prepared, distributed, and reviewed.

The Accounting System at the University of Maryland, Baltimore County is PeopleSoft Finance. Its uses are to record and inform the Financial Information of the University.

Used to record an amount of money within the Financial System for Future uses. Budgets are compared with actual activities to establish variances. The responsibility of the management of the budgeted funds resides in the local unit. Budgeted funds can allow discussions on Allocating resources, Implementing a project plan, Identifying financial needs, Displaying the financial actions required to fulfill a goal

Used to record activity within the Financial System that is directly related to the support of the Unit that manages the Budget. The activity recorded should adhere to:
Allocable:  A direct relationship can be establish between the activity and to the purpose of the Unit / Project / Account to where it is recorded.  Allowable:  There exists no rules or reasons why the activity is illegal or not allowed. The activity is not excessive in quantity or cost as that the Manager of the funds acts with good stewardship of the funds. Consistency: All activity of similar nature is recorded in a similar manner whenever possible.

Activities that increase funds within an account or a Unit. These Revenue Activities are accumulated in Revenue Accounts. Revenue activities can be, but are not limited to: payment for sales of goods or services, interest on balances, collected fees, and rental income.

Activities that decrease funds within an account or a Unit. These Expense Activities are accumulated in Expense Accounts. Expense activities can be, but are not limited to: salaries to employees, purchased supplies or equipment, depreciation, and administrative costs.

Activities that shift or share a revenue or an expense between accounts or Units. Transfers should always occur between two Revenue Accounts or between two Expense Accounts. This represents the matching principal of Accounting where similar activities are treated in a similar manner.   For UMBC’s Chart of Accounts, please view this webpage: for Transfer Account guidelines.

Please see additional general Accounting 101 Definitions