Accounting Definition

Accountancy, or "Accounting," is the practice of documenting, analysing, and presenting nonfinancial and financial data pertaining to economic entities like businesses and corporations. Accounting, commonly called the "business language," is used to evaluate an organization's financial performance. This information is shared with a variety of stakeholders, including equity investors, creditors, management, and regulators. Accounting is a profession practised by accountants. Financial reporting and accounting are frequently used synonymously.

Standard costing, taxation, managerial accounting, & financial accounting are only a few of the various subfields of accounting. The primary goal of financial accounting is financial reporting, which involves producing financial statements. External information stakeholders, like investors, regulators, and suppliers, are the main target audience. Management accounting is concerned primarily with gathering, analyzing, and reporting data for internal use by management. Bookkeeping is the practice of keeping records of financial activities so that financial reports can be included in financial reports. Double-entry accounting is the sort of bookkeeping that is most frequently used. Accounting information systems provide assistance for the systems used to record financial transactions as well as related functions.

History

Accounting has existed in various forms and at various levels of proficiency throughout human history. It's common knowledge that the double-entry accounting technique, which is still in use today, was developed by the Italian mathematician "Luca Pacioli". It was developed in medieval Europe, especially in Venice. Accounting organizations such as standard-setters, accountancy companies, and professional associations contribute to the ease of accounting in modern society. Commonly accepted accounting standards (GAAP) are used to create financial accounts, which are then audited by accounting companies. Both "Financial Reporting Council" in the UK, as well as the "Financial Accounting Standards Board" in the United States are two standard-setting bodies that create GAAP. By 2012, "all major economies" plan to implement the 'International Standards for Financial Reporting'(IFRS) or take steps in that direction.

Early human civilizations thousands of years ago used accounting. In addition to early reporting systems used by the ancient Egyptians and Babylonians, early bookkeeping practices in ancient Iran are indicated. The first accounting techniques date back to prehistoric Mesopotamia and are closely related to developments in writing, counting, & money. During the rule of Emperor Augustus, the Roman administration had access to extensive financial information.

Double-entry accounting was created by Jews around the Mid-East in the early medieval period and later developed in medieval Europe. Accounting became divided into management accounting and finance accounting as joint-stock businesses grew.

The earliest work regarding the double-entry accounting information system to be made public was The Summa de Arithmetica, created by Luca Pacioli and printed in Italy in 1494. The move from accounting to an organized profession started in the nineteenth century when regional professional associations in England merged to create the Institute of Chartered Accountants (ICA) in England & Wales in 1880.

Terminology

Financial management

Financial accounting is focused on providing financial data about a company to external customers, including capitalists, possible investors, and debtors. It computes and records business activities in accordance with generally accepted accounting standards and generates financial statements for users outside the organisation. The broad integration of accounting theory & practice led to GAAP, which has evolved over time to accommodate decision-maker needs.

Financial accounting generates past-focused reports on an annual or quarterly basis, frequently for the entire business. For instance, financial statements are frequently released six to ten months following the conclusion of the accounting period.

Management accounting, or M.A.

Management accounting focuses on data that could help managers accomplish organisational goals is the main goal of management accounting. Internal financial indicators and reporting are not obliged to adhere to generally accepted accounting principles because they primarily focus on cost-benefit analysis.

The "Global Management Accounting Principles" (GMAPs) were developed by CIMA in 2014. The principles, which are the result of research spanning 20 nations across five continents, are meant to guide the best practice in the field. Management accounting comprises reports that are future-focused, like budgets, in addition to past-oriented reports with various time horizons. Financial and non-financial data are typically included in managerial accounting statements, which may, for instance, concentrate on certain products or divisions.