Accounting or accountancy is a method of measurement, analysis, and reporting of financial and non-financial information about organizations including corporations and businesses. The word accounting comes from the Latin phrase – ‘ac tuis ad idem,’ which means ‘according to what.’ It is used to specify the process of receiving payments and making payments. It is also used to define an activity or event that has a measurable effect on the financial transactions of a company.
Financial accounting comprises the process of recording financial transactions in a book of bookkeeping, also called ledger. The main parts of the ledgers of a company include the journals, journal entries, journal records, ledger records, balance sheet, tables of data, and other relevant documents. In order for these records to be maintained properly, an accountant must compile the transactions and account for them in his or her diary or ledgers. Together, all the journal entries, journal records, ledger records, balance sheet, tables of data, and other relevant financial statements are called the accounting records of a company. All these records are made of the transactions entered in the journals and ledgers by accountants or bookkeepers.
Every transaction that is recorded in the journals, journal entries, ledger records, or any other relevant accounts that form part of the accounting records of a company are called the financial transactions of a company during a specific accounting period. The accounting period may be one year per accounting period or a fiscal year. The financial statements, also known as the journal and statement, provide comprehensive information about the financial transactions of the company during the accounting period.
The major classes of accounting are cost accounting, cash-basis and profit and loss accounting, control accounting, environmental accounting, internal-control testing and accrual basis accounting. Under the heading cost accounting, the accountant reports the price changes affecting the costs of production or services of a business, the expenses of the employees and owners, and the profits and losses resulting from the business operations. Cash-basis and profit and loss accounting are using to record the cash disbursements and drawdown of capital assets. The accounting report of a company thus covers the aspects related to the price changes as well as the quantities. The accounting control system uses techniques such as cost control, quality control, and quality assurance to ensure that the output or performance of a company is within the expectations of the users.
In managerial accounting, the main job of the accountant is to make decisions about how to allocate the resources of a firm for the purpose of achieving overall company performance objectives. Decision making is based on the material, time, and costs of doing the work. Material decisions include the purchasing of supplies, material inventories, production, marketing, and sale. Time decisions include the allocation of the staff to do various activities and to perform their tasks. Marketing and selling decisions are concerned with the availability of materials and the extent to which they are used. Production decisions are concerned with the use of resources to make goods and to make manufacturing processes efficient.
In order to achieve the goals of the organization accounting professionals must make accurate financial transactions. They should reconcile financial transactions at the end of the financial year in order to make sure that all the money received was spent correctly and that there is no room for error. Good accountants also ensure that all documents are properly closed and that the books of accounts are maintained properly. They are instrumental in analyzing and planning the future financial health of a company. In short, good accountants contribute significantly to the well-being of a business by ensuring its soundness at the macro and micro levels.