WHAT IS ACCOUNTING? |MEANING OF ACCOUNTANCY

What is accounting is a broad question that a lot of people think is as simple as defining the term accounting. In as much as defining accounting is part of the process of explaining what accounting is, it is not a complete answer to the question of what is accounting.

In this article, a different approach is taken to introduce newcomers seeking an answer to what accounting is into the process of learning accountancy. An explanation of what accounting is will be provided, followed by identifying and explaining the different branches of accounting. The required knowledge and skills needed to be an accountant will be explored and finally, importance, significance and career prospects in accounting will once again be discussed.

MEANING OF ACCOUNTANCY AND ACCOUNTING

Accountancy is that aspect of business studies which deals with the technicality of company’s record keeping, analysis of business information, interpretation of financial information, and communication of accounting information of a company to people that has interest in the company. That aspect of business process that involves the; collection, collation, analysing, interpreting, packaging, and communicating accounting information is what accounting is all about.

Modern day accounting now talk about the identification and quantification of business risks while seeking the most optimal way to ameliorate the effects of risk exposure on the business entity. Even though the difference between accountancy and accounting is a subtle one, it is important that you notice it. While accountancy is the study of accounting, accounting is the process of doing what is learnt from studying accountancy.

BRANCHES OF ACCOUNTING | ACCOUNTANCY

Within the discipline of accounting are areas that accountants can specialise in. This section of this article is used to discuss the areas of accounting that you may want to focus on.

FINANCIAL ACCOUNTING

Financial accounting is purely a stewardship accounting that enables the owners of a business to have an overview of the state of things in their business. Financial accounting was given birth to when the need for separation of ownership from management become paramount as a result of what many referred to as civilization in business. Overtime however, financial accounting became a legal requirement that must be met by all forms of businesses. The required contents and format of financial accounting are contained in accounting standards. Users of accounting information rely on the information contained in a company’s financial statements to make various decisions which includes investment appraisal, economic and social planning, business valuation, fundamental analysis, etc. The wave of the moment in financial accounting is the use of XBRL reporting format to exchange and handle financial information of a company over the internet

COST ACCOUNTING

Cost accounting as the name implies is that branch of accounting that deals with the hassle and stress of identifying, gathering and tracing of cost information to cost objects. A cost object is any product or service that consumes economic resource. There is the traditional cost allocation method and the more recent method of allocating costs- especially overhead cost. This recent method is called the ABC costing method. ABC stands for activity-based costing.

MANAGEMENT ACCOUNTING

Management accounting or managerial accounting is the branch of accounting that is closely aligned with cost accounting. It is all about seeking the best way of using cost information produced from cost accounting system to achieve the best result for the company as a whole. Functions of management accounting have in recent time been recognised as being vital to the success of any kind of business.

AUDITING

Auditing is an accounting arm that deals with lending credibility to a company’s annual financial reports. It carries out series of tests to establish the compliance level achieved by a company in preparing its financial statement. We have internal audit and external audit – all done by accountants. It is best practice for both the external and internal auditors to apply risk based approach to discharging their audit functions.

TAXATION

Taxation is an extension of business law as contained in the study of accountancy. It is a specialised area of accounting that has attracted so much attention- especially the transfer pricing. Accountants also prepare and audit the Pay As You Earn (PAYE) of companies.

SKILLS NEEDED TO BE AN ACCOUNTANT

It takes hard work and dedication to become a qualified accountant. Accountants of today are more of information processing professionals than the traditional number crunching accountants of the old. For you to be an accountant today, you must be good in your core areas of accounting discussed above and also have a thorough relevant knowledge of information technology. The rising incidence of fraud has also made it very important that all accountants be trained in financial forensic issues.

For the discussion of the importance of accounting and careers opportunities in accounting, follow the links above.

I hope that with this article, your idea and perception of what is accounting has changed?