Accounting Overview

Summary

  • What is Accounting?
    • Art of recording, classifying, and summarizing
    • Significant manner and in terms of money
    • Transactions and events which are in part at least of financial character
    • Interpreting the results
  • Accounting vs Bookkeeping
  • Users
  • Types of Accounting
    • Financial Accounting
    • Managerial Accounting
    • External Auditing
    • Tax Accounting
    • Government Accounting
  • 4 Sectors of Accounting

What is Accounting?

Various organizations defined Accounting to provide a better understanding of its nature and function. And one of the most notable definitions, as published by the American Institute of Certified Public Accountants (AICPA), is as follows:

“the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions, and events which are, in part at least of financial character, and interpreting the results thereof.”

Let us dissect this definition into four parts.

  1. Art of recording, classifying, and summarizing
  2. The significant manner and in terms of money
  3. Transactions and events which are in part at least of financial character
  4. Interpreting the results

Accounting vs Bookkeeping

Bookkeeping or Recordkeeping is the process of recording day-to-day activities of an entity. It is the part of accounting that focuses on storing data by recording past transactions through journalizing and posting. Accounting is a much broader function as it encompasses not only recording but also interpreting and communicating summarized transactions to users.

Users

Users are a vital part of accounting as accounting is based on the users’ needs. Accounting information is prepared to meet the users’ needs especially to aide in the decision-making process. These users are classified into two, the External and Internal Users. External users are decision-makers that do not have full access to the company’s records. They are parties outside the company’s decision-making function. Internal Users, on the other hand, are part of the company giving them the capacity to fully access the company’s records and other business activities.

Types of Accounting

  1. Financial Accounting
  2. Managerial Accounting
  3. External Auditing
  4. Tax Accounting
  5. Government Accounting

4 Sectors of Accounting

Commerce and Industry is the sector of accounting wherein an individual with the necessary skills and competence is employed by an entity as an accountant. Accountants in commerce and industry typically perform financial accounting, managerial accounting, tax accounting, and internal auditing. Being a CPA is not a qualification to be a private accountant as long the employer hires that individual but, having a CPA license increases the chance of passing an employment application. Because of this lower qualifications, commerce and industry is the largest sector of accounting.

Public Accounting – is the sector that provides accounting, auditing, and other related services to different clients or the public. Anyone can hire the services of a public accountant to conduct accounting related services at a reasonable engagement price. Meaning, public accountants do not serve single employer but various clients, usually businesses. Services offered may include financial accounting, external auditing, tax accounting, management advisory services, forensic accounting and more. To provide the best services to the public, public accountants must be a licensed CPA.

Government Accounting – is the practice as an accountant in local government, national government or in government-owned and or controlled corporations. To be a government employee, an individual must pass the civil service eligibility exam but board licenses such as the CPA license serve as second-level eligibility. Therefore, accountants in government are usually licensed CPAs.

Academe – the sector wherein an accountant, as part of an educational institution, teaches accounting, auditing, management advisory services, accounting aspects of finance, business law, taxation, and other technology-related subjects.

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