Skip Nav

Accounting Dictionary

Navigation menu

❶Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors.

Ads By Google

You are here
What is 'Accounting'

The financial statements that summarize a large company's operations, financial position and cash flows over a particular period are concise statements based on thousands of financial transactions. As a result, all accounting designations are the culmination of years of study and rigorous examinations combined with a minimum number of years of practical accounting experience. In most cases, accountants use generally accepted accounting principles GAAP when preparing financial statements.

GAAP is a set of standards related to balance sheet identification, outstanding share measurements and other accounting issues, and its standards are based on double-entry accounting, a method which enters each expense or incoming revenue in two places on a company's balance sheet.

To illustrate double-entry accounting, imagine a business issues an invoice to one of its clients. An accountant using the double-entry method enters a credit under the accounts receivables column and a debit under the balance sheet's revenue column. When the client pays the invoice, the accountant debits accounts receivables and credits revenue. Double-entry accounting is also called balancing the books, as all of the accounting entries are balanced against each other.

If the entries aren't balanced, the accountant knows there must be a mistake somewhere in the ledger. Financial accounting refers to the processes accountants use to generate the annual accounting statements of a firm. Management accounting uses much of the same processes but utilizes information in different ways.

Namely, in management accounting, an accountant generates monthly or quarterly reports that a business's management team can use to make decisions about how the business operates. Just as management accounting helps businesses make decisions about management, cost accounting helps businesses make decisions about costing.

The total liabilities indicate the amount of money a company owes to its short-term and long-term creditors, and are divided into short-term liabilities, also known as current liabilities, and long-term liabilities.

Companies expect to pay off short-term liabilities within one year, while they expect to pay off long-term liabilities more than one year from the balance sheet recording date. The shareholders' equity portion of the accounting equation could be calculated by summing the amount of share capital and retained earnings and subtracting the amount in treasury shares from the sum. A balance sheet reports a company's assets, liabilities and shareholders' Shareholder's equity SE is the owner's claim after subtracting A liability is defined as a company's legal financial debts or As an experienced or new analyst, liabilities tell a deep story of how a company finances, plans and accounts for money it will need to pay at a future date.

Learn to use the composition of debt and equity to evaluate balance sheet strength. Such reports may include both financial and non financial information, and may, for example, focus on specific products and departments. Auditing is the verification of assertions made by others regarding a payoff, [35] and in the context of accounting it is the " unbiased examination and evaluation of the financial statements of an organization".

An audit of financial statements aims to express or disclaim an opinion on the financial statements. The auditor expresses an opinion on the fairness with which the financial statements presents the financial position, results of operations, and cash flows of an entity, in accordance with the generally acceptable accounting principle GAAP and "in all material respects".

An auditor is also required to identify circumstances in which the generally acceptable accounting principles GAAP has not been consistently observed. An accounting information system is a part of an organization's information system that focuses on processing accounting data. Banking and finance industry is using AI as fraud detection. Retail industry is using AI for customer services. AI is also used in cybersecurity industry.

It involves computer hardware and software systems and using statistics and modeling. Tax accounting in the United States concentrates on the preparation, analysis and presentation of tax payments and tax returns. 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.

Depending on its size, a company may be legally required to have their financial statements audited by a qualified auditor, and audits are usually carried out by accounting firms. Accounting firms grew in the United States and Europe in the late nineteenth and early twentieth century, and through several mergers there were large international accounting firms by the mid-twentieth century.

Further large mergers in the late twentieth century led to the dominance of the auditing market by the "Big Five" accounting firms: Generally accepted accounting principles GAAP are accounting standards issued by national regulatory bodies. Organizations in individual countries may issue accounting standards unique to the countries.

At least a bachelor's degree in accounting or a related field is required for most accountant and auditor job positions , and some employers prefer applicants with a master's degree. For example, the education during an accounting degree can be used to fulfill the American Institute of CPA's AICPA semester hour requirement, [53] and associate membership with the Certified Public Accountants Association of the UK is available after gaining a degree in finance or accounting.

A doctorate is required in order to pursue a career in accounting academia , for example to work as a university professor in accounting. The PhD is the most common degree for those wishing to pursue a career in academia, while DBA programs generally focus on equipping business executives for business or public careers requiring research skills and qualifications. Professional accounting qualifications include the Chartered Accountant designations and other qualifications including certificates and diplomas.

Students must pass a total of 14 exams, which are arranged across three papers. Accounting research is research in the effects of economic events on the process of accounting, and the effects of reported information on economic events.

It encompasses a broad range of research areas including financial accounting , management accounting , auditing and taxation. Accounting research is carried out both by academic researchers and practicing accountants.

Methodologies in academic accounting research can be classified into archival research, which examines "objective data collected from repositories "; experimental research, which examines data "the researcher gathered by administering treatments to subjects "; and analytical research, which is "based on the act of formally modeling theories or substantiating ideas in mathematical terms". This classification is not exhaustive; other possible methodologies include the use of case studies , computer simulations and field research.

Empirical studies document that leading accounting journals publish in total fewer research articles than comparable journals in economics and other business disciplines [63] , and consequently, accounting scholars [64] are relatively less successful in academic publishing than their business school peers. Many accounting practices have been simplified with the help of accounting computer-based software. An Enterprise resource planning ERP system is commonly used for a large organisation and it provides a comprehensive, centralized, integrated source of information that companies can use to manage all major business processes, from purchasing to manufacturing to human resources.

Accounting information systems have reduced the cost of accumulating, storing, and reporting managerial accounting information and have made it possible to produce a more detailed account of all data that is entered into any given system. The year witnessed a series of financial information frauds involving Enron , auditing firm Arthur Andersen , the telecommunications company WorldCom , Qwest and Sunbeam , among other well-known corporations.

These problems highlighted the need to review the effectiveness of accounting standards , auditing regulations and corporate governance principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance.

In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk. The Enron scandal deeply influenced the development of new regulations to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms. In addition to being the largest bankruptcy reorganization in American history, the Enron scandal undoubtedly is the biggest audit failure.

The scandal caused the dissolution of Arthur Andersen , which at the time was one of the five largest accounting firms in the world. After a series of revelations involving irregular accounting procedures conducted throughout the s, Enron filed for Chapter 11 bankruptcy protection in December One consequence of these events was the passage of Sarbanes—Oxley Act in the United States , as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for securities fraud , for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.

From Wikipedia, the free encyclopedia. This is the latest accepted revision , reviewed on 13 September Financial Internal Firms Report. Accountants Accounting organizations Luca Pacioli. Management accounting Financial accounting Financial audit.

Balance Sheet

Main Topics

Privacy Policy

Accounting provides information on the. resources available to a firm, the means employed to finance those resources, and; the results achieved through their use. See also: List of Key Accounting Terms and Definitions at

Privacy FAQs

Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business. Accounting also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities.

About Our Ads

Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit. See also: List of Key Accounting Terms and Definitions at Accounting has variously been defined as the keeping or preparation of the financial records of an entity, the analysis, verification and reporting of such records and "the principles and procedures of accounting"; it also refers to the job of being an accountant.

Cookie Info

In accounting, the term relevance means it will make a difference to a decision maker. For example, in the decision to replace equipment that has been used for the past six years, the original cost of the equipment does not have relevance. In other words, the original cost is irrelevant or is not. Accounting - Accounting keeps track of the financial records of a business. In addition to recording financial transactions, it involves reporting, analyzing and summarizing information. In addition to recording financial transactions, it involves reporting, analyzing and summarizing information.