Accounting is the scientific measurement, interpretation, and reporting of financial and non-financial information about organizations including corporations and businesses. Accounting is a part of data processing. Data processing involves organizing, collecting, managing, and communicating information that are related to organizations. The objective of accounting is to provide information to decision makers so that they can make decisions that will maximize the potential of the organization. This enables companies to compete effectively with other organizations in the marketplace.
There are two broad categories of people that use accounting information. First, external users such as managers, investors, tax authorities, regulatory agencies, etc. Second, internal users include individuals in the accounting process itself such as accountants, auditors, financial analysts, and internal control personnel. Accounting involves the systematic recording, classifying, summarizing and communicating of financial information. Accounting has three major processes: Financial accounting, which reports the financial results of a business or company’s activities related to the sale of assets, goods and services and the financing of operations; Management accounting which is concerned with internal control and risk management and requires information regarding the preparation and implementation of strategies and plans; And Financial reporting which is the communication of results of an accounting procedure to decision makers.
There are three major areas of accounting. First, there is general accounting which provides an overview of the financial condition of a company. General accounting includes valuing the assets, liabilities, revenues and expenses of a company. Second, there is managerial accounting, which is concerned with analyzing the interrelationship between financial items and other organizational policies and practices. Finally, there is cost accounting which is concerned with the measurement of costs of production or activity.
The basic accounting standards are stated in the United States generally accepted accounting principles (GAAP). The most common accounting standards for domestic and global organizations are presented in the International Financial Reporting Standards (IFRS). International accounting standards are specified by the International Accounting Standards Board (IASB). The IASB developed a set of international accounting standards and by participating states developed the International Accounting Standards Responsibility Code (IASRC) that is a standardized form of accounting information.
There are three important features of accounting information systems. Firstly, information must be processed efficiently and effectively to provide accurate and timely results. Secondly, the accounting process must be the process by which agencies or individuals make informed decisions about transactions and all related facts and figures. Thirdly, the information must be examined to ensure the reliability and validity and the usefulness of the information. Accounting professionals use different kinds of accounting information systems to perform their functions; however, the most widely used accounting information systems are the balance sheet, profit and loss account, the statement of cash flows and financial statement analysis.
In order to perform their function better, accounting professionals must develop sound managerial skills and leadership skills. The key skills required by accountants are: effective identification and evaluation of problems and issues, effective problem solving, good decision making, ability to organize, plan, control and evaluate resources. The ability of the accountant to communicate well with all types of people, from colleagues to customers, is also very important. Accountants have to be able to make critical decisions and have the ability to act quickly. They must be able to make accurate financial reports and be able to solve complex problems in an effective manner.