What is Accounting?

Some people have always termed accounting as a boring subject, consisting of nothing but math and calculations all through. Accounting has more than just crunching numbers. In fact actual definition of accounting is a process of identifying, recording, summarizing and reporting economic information for decision making purposes.

In simpler terms, accounting is a business language which helps to make business run. Without accounting, no business can prosper. It is through accounting that business activities are recorded to show when and where income is spent as well as the commitments made.

It would be a pretty safe betting that you are not enrolling for accounting because you think it will lead to career in spotlight, or do you? How often have you seen Brad Pitt starring in action thriller of a jet-setting accountant? And who do you think gets to approve his films to go into production? And who do you think supervises the hefty income that Mr. Pitt gets…you get it, someone just like you, who knows accounting and how to handle money.The point here is that accounting has lots of things entailed that what people perceive. If accounting matches the interests and goals you have, hang on the course.

For most businesses, importance of accounting is clearly evident. Changing a strategy and using another one has all to do with the money generation structure. Accounting helps in evaluating current weaknesses and opportunities, and thus helping the managers to made decisions regarding the current strategy and whether it is advisable going for another one or not. It’s through accounting that the managers get to see where they have come from and where the company will be sometime in future.

Accounting is not just for big businesses!!

Other groups of people think that accounting will only apply to big companies that have thousands of net worth profits. Truth of matter is that importance of accounting is felt even by the ‘normal’ individuals. From the time you start checking your account. The check ledger is an accounting log for the incomes and outcome activities which also helps you in getting both the inflows and outflows of your money, and how much you’ve left in the bank; you start to understand what is accounting. You have to balance the log for you to get the actual cash position, thus helping you in planning for future purchases and hence reducing instances of spending more than what you currently have.

Can you now visualize the importance of accounting? Now imagine what happens to organizations which are having such complicated time with more than 400 checkbook transactions per two minutes…that is where book keeping, a branch of accounting comes in. no organization which can make useful decisions without a good accounting system. If you have tried to pull your hair when trying to balance checkbooks, then you have a good picture of what is the purpose of accounting and its challenges.

Remember, accounting is not just the adding and subtracting. It has broad of responsibilities; preparation and interpretation of financial reports and decision making. These are some of the skills which every successful business, no matter its type or form must have. If you are good in accounting, sky is the limit and anything pertain to accounts, from bookkeeping to financial accounting will just another subject, but if you are determined and have a positive attitude and belief that you can enroll.

Getting beyond heights

Accounting course is divided into other various sub topics in itself. These sub topics helps in full covering, and progression of each step in understanding the subject better. Some of the constituents in accounting are book keeping, financial accounting, and cost accounting among others.

Accounting system

The accounting system gives the universal business language. It involves the collection, documentation and reporting financial transactions affecting a business. All accountants uses the same rules, commonly referred to as the generally accepted accounting principles-GAAP, in preparation of accounting reports. The information provided by the accountant can be used by two groups;

  • The internal individuals (those who are working within the business entity)
  • The outsiders (such as the creditors, and others who have an interest with the business

For the sake of the two groups, accounting is then grouped into

  • Financial accounting
  • Managerial accounting

What is financial accounting?

This is accounting which focuses on providing information of the organization/business to the external users. These are reports which are prepared by individuals (accountants) for a given period of time. More of this is discussed in part 2 of this series…

Management accounting

Here, the accountant focuses on reporting the information to the management of the business, thus often referred to as the accounting for internal users. The accountant is required to record day-to-day transaction of the business such as payments, productions, sales, purchasing, hiring among other uncountable business operations.