Also known as accountancy, accounting is the evaluation, processing and communication of non-financial and financial information regarding economic entities like corporations and businesses. Regarded as the language of business, accounting helps evaluate the results of the economic activities in an organization and delivers the information to several users, such as regulators, management, creditors, and investors.
And, those who practice this activity are known as accountants.
This profession can be diversified into a variety of fields on the basis of accounting concepts. These include:
This one focuses on the measurement, analysis as well as the reporting of information for internal use by the organization’s management. It comprises recording financial transactions to present the summaries in the financial reports.
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This type focuses on reporting the financial information of an organization to the external users like regulators, suppliers, and investors. This one also includes preparing the financial statements
Similar to management accounting, this one assists businesses to come up with decisions regarding costing. Mainly, this type of accounting regards the costs pertaining to the production of a product.
Managers, business owners, accountants, and analysts use this information to comprehend the cost of their products.
Suppose, you own a business and you have sent an invoice to one of your clients. An accountant will record the debit to receivable accounts, which will flow through to the Balance Sheet and credit to sales revenue, which will go through to the income statement.
When your client processes the payment, the accountant credits receivable account and debits cash. This method is known as double-entry accounting, which is also called balancing the books. Thus, if the entries are not balanced, the accountant gets to know there is a mistake somewhere.
Almost for any business, accounting is one of the primary functions. In a small firm, it could be handled by a single accountant. And, in a large company, the responsibility goes to a considerable finance department with several employees.
Reports created by several accounting streams like management accounting and cost accounting are precious when it comes to helping the management make cautious decisions. The financial statements that carry the operations, cash flows and financial position of a company are particularly consolidated and concise reports that are based on an array of financial transactions.