ACCOUNTING

Accounting is the process of recording, classifying and summarizing financial transactions. It provides a clear picture of the financial health of your organization and its performance, which can serve as a catalyst for resource management and strategic growth.

Accounting is like a powerful machine where you input raw data (figures) and get processed information (financial statements). The whole point is to give you an idea of what’s working and what’s not working so that you can fix it.

Accounting information exposes your company’s financial performance; it tells whether you’re making a profit or just running into losses at the end of the day.

This information is not just available to you, but also to external users such as investors, stakeholders and creditors who would want to be enlightened about your business, to figure out whether it’ll be a good choice to invest in and what they can expect in returns.

Besides playing a key role in providing transparency for stakeholders, accounting also ensures you make informed decisions backed by data.

Types of Accounting

Accounting can be broken down into several categories; each category deals with a specific set of information, or documents particular transactions. In this section, we discuss four of the most common branches of accounting:

• Financial Accounting: This is the practice of recording and reporting financial transactions and cash flows. This type of accounting is particularly needed to generate financial reports for the sake of external individuals and government agencies. These financial statements report the performance and financial health of a business. For example, the balance sheet reports assets and liabilities while the income statement reports revenues and expenses. Financial accounting is governed by accounting rules and regulations such as U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards).
• Managerial AccountingManagerial Accounting: This focuses on the use and interpretation of financial information to make sound business decisions. It’s similar to financial accounting, but this time, it’s reserved for internal use, and financial statements are made more frequently to evaluate and interpret financial performance.
• Cost Accounting This is the process of tracking, analyzing and understanding the costs involved in a specific business activity. This includes all direct and indirect expenses associated with your business’s day-to-day operations. Cost accounting is particularly important because it helps you ensure that you are spending money on things that benefit your business’s bottom line.