What is Accounting and its main types ?

What is Accounting?


Accounting is a language that gives information about the financial status of an organization.

we are mainly learning this specialized language.

By learning this language we can communicate and understand the financial position of any business.

It allows a company to analyze the financial performance of the business and look at statistics

Such as net profit.


is an art of

Recording: General journal

Classifying: Ledgers

Summarizing: Financial Statements

Interpreting: Analysis of financial statement

Of financial transactions

It reveals loss or profit for a given accounting period and the value of a firm’s assets, liabilities, and owners’ equity.

The American association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgment and decisions by users of the information”

Three Main Parts of Accounting 

Financial Accounting 

One part of  focuses on presenting the information in the form of general-purpose

Financial statement(balance sheet, income statement, etc.)

People outside of the company. These external reports must be prepared in accordance with generally accepted principles often referred to as GAAP or UA GAAP.

This part is referred to as financial accounting.

This is the information that is used by managers, shareholders, banks, creditors and the public, etc to make decisions involving the organization and its operations.

Shareholders want information about what their investment is worth and whether they should buy or sell shares.

This type of information would be very difficult to extract if every company used a different system for recording their financial position.

Financial accounting information is subject to a set of ground rules that dictate how the information is reported and this ensures uniformity.

Management Accounting 

It also provides the company’s management with the information in the shape of reports it needs to keep the business financially healthy.

These analyses and reports are not distributed outside of the company.

This is known as the management accounting.

involves compliance with government regulations pertaining to income tax reporting.

Modern Accounting 

Today much of the recording, storing and sorting aspects have been automated as a result of the advances in computer technology.

The use of computers is making these transactions much easier to post and work for the company.

Reports of any kind can be produced with the push of a button and a quick snapshot of the required information is revealed.

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salman khan

Written by worldofitech

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