Accountancy or accounting is the measurement, recording, and interpretation of financial and or non-financial information regarding organizations including corporations and businesses. In simple terms, accounting provides an understanding of the financial situation and trends of an organization, as well as an understanding of how various transactions are impacting a company’s bottom line. By reporting to a variety of different bodies including owners, stakeholders, management, regulatory authorities, and other interested parties, accounting seeks to provide a reasonable and accurate representation of the financial information of a company. Accounting also takes the guesswork out of a company’s financial situation by creating and executing reports that give managers a complete picture of a company’s assets, liabilities, revenues, expenses, and shareholders’ equity.
Accounting provides support for various other aspects of a company’s activities and finances including auditing, which is a process of evaluating the accounting records of a company to determine the validity of accounting reports and to ensure that they are consistent with the accounting principles used by the company. Management is generally involved in the process of overseeing and facilitating the accounting process. The primary function of accounting is to provide decision-makers with the financial data that is required in support of their business decisions. All accounting transactions are recorded in documents known as journal accounts.
Auditors assess the internal accounting controls used by the company to evaluate the effectiveness of the company’s internal controls as well as the completeness and accuracy of the financial information reported in the journal accounts. As part of their assessment, these individuals may make recommendations to management regarding any material accounting errors or weaknesses that could have a material effect on the outcome of the planning and execution of the company’s business. Management, in turn, would implement any suggested changes that would better meet the requirements of the accounting reports. These recommendations are then passed on to a committee that is in charge of monitoring and evaluating the company’s activities to ensure that the recommendations are being implemented as needed to meet the desired results in the monitoring of the company’s accounting.
People within management accounting may also be involved in other functions. One such function is that of a cash flow prediction officer. This person is responsible for predicting the amount of cash that would be available in the current period for operating expenses, inventory purchases, and financing activities. The forecasted cash flows are then used to help the management accounting department come up with a more accurate prediction of future cash flows.
Other areas of accounting concentrate on the recording of the financial information of the owner or owners of a company. In this sense, the term “managerial accounting” refers to the process through which an account is maintained of the day-to-day financial activities of the business, and reports are prepared and submitted to the corporate owners for their review and approval. The reports generated by the accounting department are then used to make decisions about the allocation of resources and other managerial decision-making tools.
While the basic function of accounting is to record financial transactions that take place within a company, the scope of its activities extends well beyond that simple function. It is in fact, responsible for recording all the financial transactions that occur in a company’s internal processes as well as all those that occur with external parties. Its scope also includes the preparation of financial statements and reports that will be used internally as well as externally to other companies and organizations.