Accounting Basics

Definitions of Accounting

Accounting is the process of identifying, measuring and communicating financial information about an entity to permit informed judgments and decisions by users of the information. Accounting can thus be said to be a method of providing information to management (and other users) relating to the activities of an organization. In order to do this it relies on the accurate collection of data from sources both internal and external to the organization. The recording of this data is often referred to as bookkeeping.

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Types of Accounting

There are two types of accounting:

  • Financial Accounting and
  • Management Accounting

 Financial accounting can be described as the classification and recording of monetary transactions of an entity in accordance with established concepts, principles, accounting standards and legal requirements, and their presentation, by means of various financial statements, during and at the end of an accounting period. Management Accounting is accounting for internal used by organization and an internal part of management concerned with identifying, presenting and interpreting information.

 

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User of Financial Information

There are two type of user for financial statement:

Internal Users and

  • External Users

 

 Internal users of accounting information are managers who plan, organize, and run the business; and External Users are individuals and organizations outside a company who want financial information about the company.

 

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Purpose of Accounting

The Purpose of Accounting is to provide useful information for effective and efficient decision making.

 

Financial Statement

End results of financial accounting are Financial statement.

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