What Is Accounting?

Simply saying accounting is a procedure/method of recording day-to-day transactions of an enterprise in a way that will be easier for the management to track the funds flow and its utilization and which will also help in running the business smoothly.

Elaboration:-

Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. It is the systematic and comprehensive recording of financial transactions pertaining to a business. Accounting also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities.

The financial statements that summarize a large company's operations, financial position and cash flows over a particular period are a concise summary of hundreds of thousands of financial transactions it may have entered into over this period.

Methods of Accounting

Accounting can be done on a cash basis (cash accounting) or on an accrual basis (accrual accounting). Cash accounting records cash inflows and outflows in the period in which they occur. Accrual accounting records income and expenses in the period to which they are attributable rather than when cash payments come and go. For example, a check written in April for March's utilities would appear as a March expense under the accrual method and as an April expense under the cash method.

Types of Accounting

There are two general kinds of accounting. Financial accounting is the recording and communication of economic information in accordance with Generally Accepted Accounting Principles (GAAP) and is primarily for external users. Managerial accounting is the recording and communication of economic information that may or may not be in accordance with GAAP and is for internal users. Other accounting specialty areas exist, such as tax accounting, oil and gas accounting, or forensic accounting.

Why it is important?

Accounting is tremendously important because it is the language of business, and it is at the root of making informed business decisions. Without accounting, managers would not know which products were successful, which business decisions were the right ones, and whether the company was earning money. It would not know how much to pay in taxes, whether to lease or buy an asset, or whether to merge with another company. In short, accounting doesn't just count the beans, it measures a company's success at meeting its goals and it helps investors understand how efficiently their economic resources are being used. This is why companies must be proficient in accounting in order to make good decisions.