Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.
Key Takeaways
- Regardless of the size of a business, accounting is a necessary function for decision-making, cost planning, and measurement of economic performance.
- A bookkeeper can handle basic accounting needs, but a Certified Public Accountant (CPA) should be utilized for larger or more advanced accounting tasks.
- Two important types of accounting for businesses are managerial accounting and cost accounting. Managerial accounting helps management teams make business decisions, while cost accounting helps business owners decide how much a product should cost.
- Professional accountants follow a set of standards known as the Generally Accepted Accounting Principles (GAAP) when preparing financial statements.
- Accounting is an important function of strategic planning, external compliance, fundraising, and operations management.
Understanding Accounting
Accounting is one of the key functions of almost any business. A bookkeeper or an accountant may handle it at a small firm. At larger companies, there might be sizable finance departments guided by a unified accounting manual with dozens of employees.
