What is Accounting?

Accounting is a part of the field called Accountancy. It has come to be one of the most popular, indispensable and common procedures across many industries. Accountancy or accounting is the scientific measurement, assessment, communication and processing of financial and other non-material information about different economic entities like enterprises and corporations. This information is used to appropriately manage these entities for better profitability and growth.

Accounting is an objective and statistical approach to the collection, preparation and communication of information about financial transactions. It includes the processes of valuing the assets and determining the liabilities of an enterprise, the preparation of reports that represent the results of such analysis and the decision-making process that is necessary in support of such reports. The objective of accounting is to provide information needed for making sound decisions and for informing actions taken by an enterprise and its external influences. Hence, accounting provides important services for the decision-making ability of businesses. The discipline of accounting helps in decision-making and financial reporting of the business that is based on accounting principles.

The purpose of accounting is to provide reliable information that can improve the performance of the business. The importance and use of accounting information can vary according to the nature of the business and the various factors that are associated with it. It helps businesses in making sound decisions about resource allocation, utilization of human and financial resources, planning for budget preparation, and forecasting the future course of events and utilization of available resources. This enables businesses to maximize profits from their activities and minimize losses in order to maintain competitiveness in the market. Moreover, accounting can help the managers in taking quick decisions and provide accurate information that can lead to better understanding of the financial situation.

Generally, accounting involves the collection, recording, summarizing, classifying, analyzing and communicating of financial transactions in a controlled environment. There are several types of accounting such as financial reporting, internal control, financial analysis, management reporting and auditing. These various methods help to make the financial reports of a business current and provide decision makers with accurate and up-to-date information about the financial performance of the company. Accounting therefore, provides the required information to the management about the financial transactions in a company.

The process of accounting involves the collection of financial information that are needed for the preparation of accounting reports; tracking the progress of the accounting transactions and their effectiveness in providing the necessary managerial control; and communicating the results of the accounting transaction to other parties involved in the business, including customers, suppliers, government agencies and other stakeholders. The objective of accounting is to create reports that are relevant to the management and investors. The process of accounting includes five basic stages namely preparation of the financial statements, the identification of the financial liabilities and assets, the preparation of the statement for assessment and reporting purposes and the reconciliation of the financial results of the company to the plans and objectives. This article is meant to provide you with an overview of accounting and the basic concepts that are used to understand it.

Accounting involves creating financial records from the data that are collected and processed during the different accounting activities. Accounting records are made from the recorded events of the sales, purchases, receipts and disbursements of a small business. Financial records can be qualitative or quantitative. Quantitative data are usually derived from the recorded prices of products or services, while qualitative data are usually reflected in the accounting reports prepared by the accounting personnel. Accounting helps a business manager to make decisions about the management of the company’s financial position.

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Types of Accounts and Their Functions

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