What is Accounting & how it is classified?

Accounting is the systematic process of recording, summarizing, analyzing, and reporting financial transactions of a business or individual.

It serves as the backbone of any financial system, providing a clear picture of an organization’s financial health and guiding decision-making.

Through accounting, businesses can track income and expenses, ensure statutory compliance, and provide investors, management, and regulators with quantitative financial information.

Meaning of Accounting

The primary objectives of accounting include:

Recording Transactions: Maintaining a detailed record of all financial transactions in chronological order.
Financial Reporting: Preparing financial statements that depict the business’s financial status.
Decision Making: Providing data that helps in planning and decision-making for future growth.
Compliance: Ensuring adherence to laws and regulations.
Financial Control: Managing resources effectively to avoid overspending or financial shortfalls.

The Role of Accounting in Business:

Accounting not only records financial transactions but also plays a crucial role in budgeting, forecasting, and strategic planning. It allows businesses to evaluate their performance, understand cash flows, and make informed decisions to optimize profitability.

For example, an organization can use accounting data to identify which products generate the most revenue and which areas are incurring higher expenses, thus enabling the company to adjust its strategy accordingly.Accounting is the systematic process of recording, summarizing, analyzing, and reporting financial transactions of a business or individual.

It serves as the backbone of any financial system, providing a clear picture of an organization’s financial health and guiding decision-making. Through accounting, businesses can track income and expenses, ensure statutory compliance, and provide investors, management, and regulators with quantitative financial information.

Below are the Branches of Accounting:

Financial Accounting:
Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business.
It includes the standards, conventions and rules that accountants follow in recording and summarizing and in the preparation of financial statements.
Managerial Accounting
In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.
Cost Accounting
Cost accounting is defined as “a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail.
Auditing
An audit is an “independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.
Tax Accounting
For understanding tax accounting, you need to understand tax.
Tax: A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or national).
Tax accounting is the subsector of accounting that deals with the preparations of tax returns and tax payments.
Fiduciary Accounting
A fiduciary accounting (sometimes called a “court accounting”) is a comprehensive report of the activity within a trust, estate, guardianship or conservatorship during a specific period.
Project Accounting
Project accounting is a type of managerial accounting oriented toward the goals of project management and delivery.
Forensic Accounting
Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that investigates whether firms engage in financial reporting misconduct. Forensic accountants apply a range of skills and methods to determine whether there has been financial reporting misconduct.
Political Campaign Accounting
Political campaign accounting is a specialty practice area of accounting that focuses on developing and implementing financial systems needed by political campaign organizations to conduct efficient campaign operations and to comply with complex financial reporting statutes. It differs from traditional management and financial consultancy in that it incorporates election law requirements and the unique requirements of political campaigns.
Accounting Information System
An accounting as an information system is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources.