MoneyBestPal Team
The process of recording, summarizing, analyzing, and reporting financial and non-financial information about economic entities such as businesses.

Accounting is the process of gathering, compiling, evaluating, and disclosing financial and non-financial data regarding economic entities like companies and organizations.

The phrase "language of business" and "accountancy" are other names for accounting. Shareholders and stakeholders can better comprehend an organization's status and performance with the aid of accounting.

Why is accounting important?

Accounting has many benefits for businesses and other users of financial information. Some of the main reasons why accounting is important are:
  • Accounting keeps a record of business transactions. Accounting offers a methodical and reliable means to record and arrange financial data. This enables users to evaluate trends and patterns by comparing recent and previous data.
  • Accounting facilitates decision-making for management. Accounting offers pertinent and trustworthy data to internal users like managers, owners, and workers. They use accounting to successfully and efficiently plan, organize, and run their firm. They can use accounting to assess several options and determine the best course of action.
  • Accounting communicates results to external users. External users like investors, creditors, regulators, and tax authorities can access financial statements that are accessible and standardized thanks to accounting. They can assess an organization's performance, profitability, liquidity, solvency, and risk with the aid of accounting. They can monitor adherence to rules and laws with the use of accounting.
  • Accounting meets legal requirements. Accounting makes a guarantee that a company accurately and legally declares its financial assets and liabilities. Accounting aids a business in making accurate tax payments and avoiding fines and penalties. An organization can also avoid fraud and mistakes with the aid of accounting.

What are the main types of accounting?

Accounting can be classified into two main categories: financial accounting and managerial accounting.
  • Financial accounting is concerned with disclosing financial data about a business to external customers, including investors, creditors, regulators, and tax authorities. International financial reporting standards (IFRS) or generally accepted accounting principles (GAAP) are followed in financial accounting to maintain uniformity and comparability among various firms. Financial statements like the income statement, balance sheet, cash flow statement, and statement of changes in equity are created through the financial accounting process.
  • Managerial accounting focuses on the provision of information to internal users such as managers, owners, and employees. Instead of adhering to a set of norms or standards, managerial accounting adjusts to the requirements and preferences of each organization. Many parts of an organization's operations can be planned, controlled, directed, and evaluated with the use of managerial accounting. Reports including budgets, projections, variance analysis, cost-volume-profit analyses, break-even analyses, etc. are prepared by managerial accounting.