What is Accounting?

While bookkeepers are specifically focused on recording day-to-day financial transactions, accountants are responsible for the entire process of recording, reporting, analyzing, interpreting, and communicating financial transactions and financial information related to a business, organization or individual. An accountant analyzes financial data, prepares financial reports, and makes recommendations to management on how to improve the financial performance and position of the entity. They must also ensure accuracy, consistency, and compliance with legal and regulatory requirements. And they provide advice on taxes and other financial matters.

There are two main types of accounting in business: financial accounting and managerial accounting.

• Financial accounting is the process of recording, summarizing, and reporting financial transactions of a business to provide an accurate picture of its financial position. Financial accounting produces important financial statements such as the balance sheet, income statement, and statement of cash flows. 

• Managerial accounting is the process of analyzing and interpreting financial information to help management make business decisions about a number of critical functions, such as budgeting, cost control, and performance evaluation. 

Accounting is important for businesses and organizations because it provides an accurate record of financial activities. It helps businesses track income and expenses, measure performance, and plan for the future. Accounting also helps organizations identify potential problems, such as cash flow issues and fraud, and take corrective action. The information and analyses that accountants provide is essential to both internal stakeholders and external parties such as creditors, investors, and tax authorities, who use the information to assess the performance and health of a business.