Accounting is systematic process of recording, summarizing, analyzing and reporting of financial transactions regarding business. Along with this accounting also store, sort, retrieve and present financial information and data. Accounting is the key function of all the business organizations whether it is done by a bookkeeper or accountant at small firms to large companies. Financial statements are one part of accounting which focuses on presenting general information to outsiders like balance sheets, income statement, etc. These financial statements and reports are prepared as per generally accepted accounting principles (GAAP) and this type of accounting is known as financial accounting. Accounting also focuses on providing all necessary internal information, reports and statements to a company’s management which is required to for smooth business working. These internal reports and statements are not distributed outside the company such as budgets, estimates, quotes and etc. The reports made by accounting professionals of various streams such as financial, cost and management accounting are invaluably helpful to management in taking crucial decisions about business and its growth. Accounting is also a profession which requires formal education about accounts and its practice. As advance accounting is handled by qualified professional accountants like CMA, CA, CPA whereas basic accounts can be handled by a book keeper.
The history of accounting dated back to ancient civilization, however 14th century is beginning of modern accounting period with double entry book keeping. Earlier Arabic numerals were use in business transaction records. During renaissance period in Italy there took many developments in accounting practices. Summa de artihmetica, Geometria and Proporioni et Proportioalita describe double entry book keeping and other commerce related concepts. This gave idea of debit and credit entry of all financial transactions. During 17th century accounting had took great expansion as demand for foreign goods gave rise to chartered companies and huge capital investment. This period gave birth to big progression like stock exchange and corporate finance along with many guides for investors and accountants. Thereafter during industrial revolution of 18th century there was large scale production in factories which requires tracking of manufacturing operations and cost, material cost and labour cost. Later on was evolution of advance accounting practices in 19th century by advances in accounting which gave rise to systematic recording of financial data. In 20th century ‘The institute of chartered accountant’ was established in Australia which provide professional education of accounting.
Accounting profession is wide and dynamic which is constantly developing itself with the need and usage of user. Over time accounting has diversified itself into various branches which are:
Financial accounting id process of generating information for external use in form of financial statements. It present report and statements like balance sheet and income statement for outsiders which are based on guidelines of generally accepted accounting principles. This includes accounting standards, rules and regulation which all accountants have to follow while preparing financial statements.
Management accounting prepares information for internal use only such as budgets and estimates which enable organization to plan effectively for future. This type of accounting is very valuable for management of any organization to control and fulfill all aims and objectives of entity. Cost accounting is also a part of management which uses various techniques to control and regulate cost.
It is also known as federal accounting or public accounting. This type of accounting system is followed by public sectors which a little different from private sector accounting as the aims and objectives of public sectors are different from private ones. Governmental accounting ensures financial performing in public interest.
Tax accounting deals with all issues and matters related to taxation also it is governed by law laws and rules of jurisdiction. Therefore tax accounts adjust financial statements with laws and rules of taxation.
Forensic accounting uses accounting, auditing and investigation in cases of disputes. Forensic accountants act as a witness in court in cases of civil and criminal disputes like insurance claim dispute, personal injury claims and etc.
Project accounting is crucial element of project management which tracks all financial progress of projects through systematic system. Its main objective is to ensure financial success of projects of company.
It is also called as corporate social responsibility reporting which reports in form of environmental reports. These reports present implication of organizational activities on eco system and society. Social accounting ensures business activities in interest of society and environment.
Accounting information is not only valuable for any organization and its management but also for stakeholders of the organization. Accounting is very necessary to trace all the financial activities of the business and ensure growth and success of organization. Also accounting is very much required for management and internal purpose in order to plan effectively for future. There are two types of stakeholder, internal and externals who are interested in reports and statements of organization. Internal stakeholders are interested in how the resources are used, business capacity to invest in new projects, per unit cost of production, staff wages and salary and external stakeholders are interested in business profitability, performance, whether following accounting standards or not. Accounting is also necessary for correct taxation of any organization. It has become one of essential aspects for business corporations that reflect accurate financial position of a company.