Accounting is a glorious but misunderstood field. Accountants are often stereotyped as soulless drones laboring listlessly in the bowels of corporate bureaucracies. It's often thought of as a discipline of pinpoint exactitude with rigid rules, in practice accountants rely heavily on best estimates and educated guesses that require careful judgment and strong imagination. The short-but-sweet description of accounting is "the language of business." A more formal definition is offered by The American Accounting Association: "The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information." However defined, accounting plays a vital role in facilitating all forms of economic activity in the private, public and nonprofit sectors, in endeavors ranging from coal mining to Community Theater to municipal finance.
Accounting is defined as “the art of recording, classifying and summarizing in terms of money transaction and events of financial character and interpreting the results thereof.” An analysis of the definition of accounting brings the following functions of accounting.
Recording: This is one of the basic functions of accounting. Recording means to put the transaction to writing in books of accounts. It is essentially concerned with not only ensuring that all business transactions of financial characters are in fact recorded but also that they are recorded in an orderly manner. Recording is done in the book - "journal". This book is further subdivided in various subsidiary books such as cash journal, purchases journal, sales journal etc. Classifying: Classification is the process of grouping of transaction or entries of one nature at place. The work of classifying is done in the book termed as “Ledger”. Summarizing: This involves the presenting of classified data in a manner which is understandable and useful to management and other interested parties. This involves the preparation of at least two statements: (1) trading and profit and loss account and (2) balance sheet.
BRANCHES OF ACCOUNTING:
Accounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not least because accounting professionals tend to organize themselves around these various specialties.
Financial accounting is the periodic reporting of a company's financial position and the results of operations to external parties through financial statements, which ordinarily include the balance sheet (statement of financial condition), income statement (the profit and loss statement, or P&L), and statement of cash flows. A statement of changes in owners' equity is also often prepared. Financial statements are relied upon by suppliers of capital - e.g., shareholders, bondholders and banks - as well as customers, suppliers, government agencies and policymakers.
Where financial accounting focuses on external users, management accounting emphasizes the preparation and analysis of accounting information within the organization. According to the Institute of Management Accountants, it includes "…designing and evaluating business processes, budgeting and forecasting, implementing and monitoring internal controls, and analyzing, synthesizing and aggregating information…to help drive economic value." A primary concern of management accounting is the allocation of costs; indeed, much of what now is considered management accounting used to be called cost accounting.
Auditing is the examination and verification of company accounts and the firm's system of internal control. There is both external and internal auditing. External auditors are independent firms that inspect the accounts of an entity and render an opinion on whether its statements conform to GAAP and present fairly the...