What is Accounting?
Accounting is typically thought of as the
systematic collection, development, and analysis of
information about the economic affairs of an
organization—whether it is a business entity, a personal
or family entity, or a governmental one.
One of the most important purposes of accounting is to
clearly and concisely communicate relevant information
between and among producers and users of such financial
information.
Accounting is practiced in different
institutional contexts and at different levels, with
government accounting, national accounting, and business
accounting being the main forms used today.
Accounting makes use of various bases of
measurement, but primarily the “cash” basis, the
“accrual” basis, and variations of these are the most
widely accepted.
Accounting information is
used in various ways:
- By the organization's
management to assist in planning and control of
operations
- By various regulator or
legislative bodies and/or owners to help in the
analysis of the organization's performance and make
decisions related to its future
- By lenders, owners,
suppliers, and employees to help them determine how
much money or time to devote to the organization
- By customers and vendors
who can use the information to determine cost-based
payment pricing
- By government agencies to determine appropriate levels of taxation
The process of accounting provides information
for the above purposes via the collection and
maintenance of various numerical data, the preparation
of various kinds of reports, and the analysis and
interpretation of the data and the reports.
Most accounting information is considered
historical—that is, the accountant observes and notes
the actions that the organization takes, records their
various effects and outcomes, and assembles reports that
summarize what has transpired. Based on this analysis,
various forecasts and plans for future periods are
prepared.
As stated earlier, accounting information can be developed for any kind of organization—not just for privately-owned, profit-seeking businesses. It is, of course, used by non-profit organizations, and an important branch of accounting is international governmental accounting, which deals with the economic activities of an entire country and nations around the world.
