ACCOUNTING
Accounting is the recording, classifying, summarizing, and interpreting of financial events and
transactions to provide management and other interested parties the information they need to make
better decisions. Or, in very basic terms, accounting is the measurement and reporting to various users
of financial information about the company’s economic activities.
Financial information is primarily based on information generated from accounting. Examples of
financial transactions include: buying and selling of goods and services, using supplies held by a
business, and buying insurance. Computerized systems or manual methods are used to record such
transactions.
After recording the transactions, we will next need to classify them into groups with common
characteristics. For example, all sales are grouped together; all purchases are also grouped together.
Accounting system>refers to the methods used to record and summarize accounting data into reports.
One purpose of accounting is to help managers evaluate the company’s financial condition and
operating performance so they may make better decisions. Another purpose is to help provide financial
information to people outside the business such as owners, suppliers, banks, competitors, and
government, just to mention a few.
BRANCHES OF ACCOUNTING
Accounting work is divided into several major areas as follows:
(a). Managerial accounting (b). financial accounting (c). auditing, and (d). tax accounting. All these
present career opportunities for students willing to study accounting.
(a). Managerial accounting.
It provides information and analyses to managers within the organisation to assist them in decision
making. It is concerned with measuring and reporting costs of production, marketing, and other
functions (cost accounting); preparing budgets(planning); checking if units stay within the
budgets(controlling); designing strategies to minimize taxes (tax accounting).
Even a simple analysis of corporate figures can disclose important information.
(b). Financial accounting.
The information and analyses it develops is for use by people outside the business. It has an external
orientation because outsiders are interested in the company’s profitability, ability to pay bills, capacity
to service loans and pay interest on loans, and other financial information.
(c) . Auditing.
Auditing refers to the job of reviewing and evaluating the records used to prepare the financial
statements of a company.
Accountants within the business ensure proper accounting procedures and financial reporting are
carried on within the company.
There are also public accountants who also conduct independent audits of accounting and related
records. An independent audit is an evaluation and unbiased opinion about the accuracy of a company’s
financial statements.
(d). Tax accounting.
Tax accountants are trained in tax law and are responsible for preparing tax returns and developing tax
strategies.
Tax is the price we pay for roads, parks, schools, police protection, and other functions provided by
government.
Accounting vs. Bookkeeping
Bookkeeping involves the recording of business transactions. It is an important part of accounting.
Accounting, on the other hand, goes far beyond the mere recording of data, in that it includes classifying
and summarizing the data which bookkeepers provide.
Double-entry Bookkeeping
A system of bookkeeping in which two entries in the journal are required for each company transaction.
The Accounting Cycle
This is a six-step procedure that results in the preparation and analysis of the two major financial
statements: the balance sheet and the income statement. The accounting cycle generally involves the
work of both the bookkeeper and the accountant. The first three steps are continuous:(1) analyzing and
categorizing documents, (2) putting the information into journals, and (3) posting that information into
ledgers. The fourth step involves preparing a trial balance. The fifth step is preparing an income
statement and a balance sheet. The sixth step is the accountant’s analysis of the financial statements
and the evaluation of the financial condition of the firm.
