Accounting is the measurement, processing and communication of financial information about economic entities. such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the “language of business”, measures the results of an organization’s economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms “accounting” and “financial reporting” are often used as synonyms.
Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting and cost accounting. Accounting information systems are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organization’s financial information, including the preparation of financial statements, to external users of the information, such as investors, regulators and suppliers and management accounting focuses on the measurement, analysis and reporting of information for internal use by management. The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system.
Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems.
Financial accounting focuses on the reporting of an organization’s financial information to external users of the information, such as investors, potential investors and creditors. It calculates and records business transactions and prepares financial statements for the external users in accordance with generally accepted accounting principles (GAAP). GAAP, in turn, arises from the wide agreement between accounting theory and practice, and change over time to meet the needs of decision-makers
Management accounting focuses on the measurement, analysis and reporting of information that can help managers in making decisions to fulfil the goals of an organization. In management accounting, internal measures and reports are based on cost-benefit analysis and are not required to follow the generally accepted accounting principle (GAAP). In 2014 CIMA created the Global Management Accounting Principles (GMAPs). The result of research from across 20 countries on five continents, the principles aim to guide best practice in the discipline.
Auditing is the verification of assertions made by others regarding a payoff, and in the context of accounting it is the “unbiased examination and evaluation of the financial statements of an organization”
Accounting information systems
An accounting information system is a part of an organisation’s information system that focuses on processing accounting data.
Tax accounting in the United States concentrates on the preparation, analysis and presentation of tax payments and tax returns. The U.S. tax system requires the use of specialised accounting principles for tax purposes which can differ from the generally accepted accounting principles (GAAP) for financial reporting.U.S. tax law covers four basic forms of business ownership: sole proprietorship, partnership, corporation, and limited liability company. Corporate and personal income are taxed at different rates, both varying according to income levels and including varying marginal rates (taxed on each additional dollar of income) and average rates (set as a percentage of overall income)
Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.
A bank account is a financial account maintained by a financial institution for a customer. A bank account can be a deposit account, a credit card account, a current account, or any other type of account offered by a financial institution, and represents the funds that a customer has entrusted to the financial institution and from which the customer can make withdrawals. Alternatively, accounts may be loan accounts in which case the customer owes money to the financial institution.
The financial transactions which have occurred within a given period of time on a bank account are reported to the customer on a bank statement and the balance of the accounts at any point in time is the financial position of the customer with the institution.
The laws of each country specify the manner in which accounts may be opened and operated. They may specify, for example, who may open an account, how the signatories can identify themselves, deposit and withdrawal limits and many other matters.