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Simple English definitions for legal terms
accounting
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A quick definition of accounting:
Accounting is the process of keeping track of a business's money. This includes recording all the money that comes in and goes out, analyzing the information, and making reports about it. Accountants are the people who do this work. They use special rules to make sure the reports are accurate and follow the law. There are different types of accounting, like financial accounting, which makes reports about a business's overall money situation, and cost accounting, which looks at how much it costs to make a product.
A more thorough explanation:
Accounting is the process of accurately and timely recording, analyzing, summarizing, and classifying financial transactions of a business. This means keeping track of all the money that comes in and goes out of a company. Accountants or Certified Public Accountants usually handle the accounting procedures of a business or person. They use financial records called financial statements to keep track of the company's finances.
There are different types of accounting practices:
- Financial Accounting: This is the most common type of accounting. It refers to the process of generating interim and annual financial statements.
- Managerial Accounting: Although this category uses the same information as financial accounting, such information is used to make business decisions, such as budgeting and forecasting.
- Cost Accounting: Mainly focused on analyzing the costs related to the production of a product by a business to establish its selling price.
Accounting procedures usually follow generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) when preparing financial statements.
For example, if a company wants to know how much money it made in a year, it would use financial accounting to create an income statement. If a company wants to know how much it costs to make a product, it would use cost accounting to analyze the production costs. These examples illustrate how accounting is used to keep track of a company's finances and make informed business decisions.