Accounting refers to the systematic process of recording, classifying, selecting, measuring, summarizing, evaluating, and presenting financial data of a business entity or other organization to track performance and facilitate informed decision-making.
Characteristics of Accounting:
- Transactions are recorded in journals and posted to ledger accounts according to GAAP/IFRS
- Periodic adjustment and closing entries transfer data to financial statements
- Tools like T-accounts, worksheets, and trial balances ensure accuracy
- Internal controls promote integrity and reliability of reported statistics
- Non-routine judgments may be needed for areas like estimates and tax compliance
Example Usage:
Struggling to gain insights from disorganized past records, the entrepreneurs hired an accountant to implement a full-fledged accounting system in order to properly manage cash flows and monitor key metrics.
Key Takeaways:
Consistently applied accounting principles generate financial data central to operating, investing, and financing decisions, while satisfying external reporting obligations to stakeholders such as regulators and investors.
