The accounting definition is that it is a set of concepts and methods used to measure and report financial information about a business. Accounting is much wider in scope than bookkeeping, which is simple the process of recording financial transactions.
Accounting is the language of business, used to interpret and analyse the information collected by the bookkeeping process, to establish for example, whether the business is making a profit, or whether it has sufficient cash to pay its liabilities as they fall due.
Accounting information is used by a large number of people, managers use it to make decisions, owners and investors want to know their return on investment, suppliers are concerned with the ability of the business to make payments, and tax authorities use it to calculate tax liabilities. For this reason it is important that accounting adopts an agreed set of concepts and techniques in order for it to provide consistent and reliable information.
Accounting is different to bookkeeping and is usually carried out by more senior staff. Bookkeeping is the process of recording financial transactions. The output from the bookkeeping process is the input for the accounting process which is then used to analyse and interpret the information.
Types of Accounting
There are numerous types of accounting such as financial accounting, cost accounting and management accounting.
Financial accounting deals with the recording, classifying, summarizing, and interpretation of financial transactions and events.
Cost accounting is the application of costing principles, methods and techniques to cost control for the purposes of managerial decision making.
Finally, management accounting is the use of financial and cost accounting information to make business decisions.
For further information see the Wikipedia Accounting definition.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.