What is accounting?

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Accounting is a mechanism for documenting financial transactions related to a company. The accounting process includes summarizing, analyzing and reporting these transactions to supervisory agencies, regulators and tax collectors. In other words, accounting is the process of recording and summarizing financial information in a useful way.

It is obvious that businesses of all sizes need to be able to manage financial details relevant to their business. Accounting lets you use the past to take decisions in the present to change the future. This also includes bookkeeping, which is the collection of information, financial accounting, which is prepared for external stakeholders, managerial accounting, which is the strategic information accessible to insiders, and tax accounting, which measures business income taxes.

Collection of Information

Financial Accounting

Prepared for external stakeholders

Managerial Accounting

Strategic information accessable for insiders

Tax Accounting

Measures business income taxes

Do you know how accounting helps you run your business?

It’s a must unit, and it’s going to work all the time. In order to be able to understand its significance, try to imagine for a second that you will wake up tomorrow and that all the accounting records in the world will be gone. The first thing you find out is that you no longer have electricity in your office or at home. The electricity company has shut it down for you, as there is no bill payment record for the previous month. And then you decided to buy some coffee so tried to withdraw some money from the nearest bank, but when you get there, you find out that the bank doesn’t have a record of your name, so they’ve lost details about your savings, so everything that was yours is gone.

So the argument here is modern society, as we know it actually cannot operate without an accounting system and is a basic framework for companies, banks, states, public and private organizations. Let me also give another example, think of Google, which has about thousands of employees and operates in more than 100 countries around the world in different vertical sectors.

Can you imagine how complicated the operations are during crisis like Covid19? Is google going to be able to track its companies without a clear accounting system in place? Will it be able to understand whether or not its operations in any given country are profitable? And is there a product that is not competitive and should be discontinued?

Recording every single transaction that takes place within the company is of utmost importance at this degree of complexity. It is indeed a standard accounting or accounting system that guarantees that all relevant information has been recorded and is ready for use.

I ‘m sure you get to the point where you now know what accounting is and how accounting plays a critical role in our community and organization. A proper accounting system is the cornerstone on which all accounting is built.


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