Accounting or accountancy is the measurement, interpretation, and communication of information about non-financial and financial subjects including corporations and businesses. It involves the systematic recording, measurement, reporting, management reporting and control of financial transactions. The objective of accounting is to provide information about the financial activities and performance for decision-making by managers, owners and stakeholders. Accounting has evolved since the mid-19th century as a methodology that is used by companies to make their data available to other interested parties for decision-making purposes.
Generally, financial statements are the reports submitted by the accountant to the members of a company for review, validation, and explanation. They portray the financial position and performance of the company at a particular point of time. Apart from that, accounting also includes concepts like cost accounting, asset accounting, cash flow analysis, preventive accounting, internal control and financial reporting. Most of the companies have prepared various kinds of accounting reports for the year ended 30 June. Accounting has an essential part in the development of any company and there are many issues that are related to accounting and its impact on the managerial decision-making process.
Cost accounting deals with the items that affect the prices of commodities and are reported annually. These include inventory costs, transportation, mark-up, and costs connected with production. Asset accounting provides information about the relationships between an entity’s assets and liabilities. Management accounting deals with the reporting of activities for the purpose of optimizing the performance of the business, analyzing the financial situation, providing guidance to the management, preparing financial statements, and reviewing audit reports.
Accounting is based on principles that draw connections among persons, things, and objectives. It is a science concerned with the use of information to determine patterns, relationships, trends, and values. Accounting involves the process of collecting, managing, transmitting, and utilizing information and its associated data to give information to other persons, such as owners and managers, or managers and shareholders. The information from accounting is used by accountants, auditors, and other people involved in the business to take certain actions in order to improve their knowledge of the financial situation and to determine the performance of the company.
The process of accounting includes several steps such as the collection of data, creating reports, analyzing the data, communicating the results of the analysis, communicating the information to others involved in the business, and communicating the results of the studies to decision makers. The financial statements of an organization to provide the accountant with information needed to evaluate the performance of the business. The information from the accounting software will help the accountant to understand the organization’s current business situation, predict the future trends, make decisions, and manage the business. Some of the concepts that are commonly understood by accountants include: asset valuations, cash flows, financial statement analysis, budgeting and forecasting, and financial reporting. The significance of accounting can be understood better if we know some of its basic principles.
A major part of accountancy is measurement of values, particularly the costs of good or services provided to the customer. A firm can be successful only if it is able to maximize profits and reduce costs, and accounting plays a very important role in achieving these goals. The three branches of accounting are: managerial accounting, sales and marketing accounting, and financial accounting. All of these branches have a part to play in accounting systems, as they are concerned with different aspects of the business and have different ways of recording transactions.