Accounting is considered to be the job of reporting financial transactions. The process of recording those financial transactions and that includes "origination of the transaction, its recognition, processing, and summarization in the financial statements." The person who is in charge of the act of accounting is called the accountant. This activity is the basis of all business and responsibilities in financial areas of that business.
Accounting involves the systematic process of recording, summarizing, analyzing, and reporting financial information, including the profit and loss for a given time period and a company's assets and liabilities. Part of the process of accounting includes reporting financial information to third parties, such as tax collectors. Accounting is one of the core departments at any organization, as businesses rely on financial information to make decisions and develop strategies, and it is carried out by accountants and bookkeepers. It could also be part of a larger finance department.
In general, more complex accounting transactions are made by Certified Public Accountants (CPAs). When producing financial statements, accountants use what are called Generally Accepted Accounting Principles (GAAP), including what is called double-entry accounting, in which each expense or credit is entered in two places on a company's balance sheet. The sheets are then reconciled with each other in a process called balancing the books.
American Accounting Association defines accounting as:
The process of identifying, measuring and communicating information to permit judgment and decision by users of accounts.
It is a tool for recording, reporting and evaluating, in monetary terms, the transactions, events and situations that effect an enterprise.
Accounting function consists of following five type of activities:
- Collection and recording of data.
- Classification of data
- Processing of data including calculating and summarising
- Maintenance or storage of results
- Reporting of results
Accounting serves many purposes. It is broadly divided in three types according to the purpose served by it. These three types of accounting are:
- Basic accounting
- Management Accounting
- External Accounting
Basic accounting, also called Bookkeeping, represents the earliest application of accounting. It serves the purpose of facilitating the operating activities of an enterprise involving financial transactions. For example to determine the money to be paid to suppliers, or to be collected from customers.
The information available from the basic accounting can be further analysed and presented to management of a firm to help them in their planning and controlling functions. This is the function served by management accounting.
With advent of large corporation the ownership of companies got separated from management, and a need arose for providing information on activities and performance of companies to shareholder and other stakeholders outside the company, not involved in direct operation or management of company. External accounting meets the need for this type of external accounting.
"The bookkeeping methods involved in making a financial record of business transactions and in the preparation of statements concerning the assets, liabilities, and operating results of a business."
Accounting is the recording of financial transactions in a systematic and properly arranged manner, or it can also be defined as the process of analyzing, summarizing and reporting financial transactions.
The main types of accounting are:
accounting is the process of keeping and recording financial records/transactions.
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