Accounting is the process of recording, classifying, summarizing, analyzing, and reporting financial transactions of a business or organization. It provides a clear picture of the financial health and performance of the entity by producing financial statements such as balance sheets, income statements, and cash flow statements. These reports help stakeholders-including management, investors, regulators, and creditors-make informed decisions
. Key aspects of accounting include:
- Tracking income, expenses, assets, and liabilities.
- Summarizing financial data to reflect the company’s operations and financial position over a period.
- Ensuring compliance with accounting standards like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
- Supporting strategic planning, cost management, and regulatory reporting.
- Dividing into specialized fields such as financial accounting (external reporting), managerial accounting (internal decision-making), tax accounting, and cost accounting
In essence, accounting is often described as the "language of business" because it communicates the economic activities of an organization in a structured and standardized manner
. Accounting differs from bookkeeping in that bookkeeping primarily involves the recording of day-to-day financial transactions, while accounting encompasses a broader scope including analysis, interpretation, and reporting of financial data
. Overall, accounting is a fundamental function for any business or organization to monitor financial performance, comply with legal requirements, and plan for future growth
