The Definition of Accounting

When you hear the word “accounting”, what usually comes to your mind? You’re probably thinking about some company and this particular person handles all of their finances. Well, although that is true to some extent, an account provides more services than that.

In this article, I will talk more about this topic because it is definitely one of the most important aspects of a company. That being said, you may want to look at some of the accounting services in Malaysia while you’re at it.

Our Early Accountants

You might not notice it, but your mom is actually the very first accountant of your household. They will usually create a budget every month- detailing everything that she needs to spend money on such as utilities, food, and even some emergency expenses.

She takes into account every money that is spent and she will keep all of the receipts and financial statements that she needs and she will put it in a container (usually a shoebox).

Every year, your mom files her taxes and it will be so much easier for her to do so, given that she has already done all of the necessary work all throughout the year.

Accounting is basically a formal version of that and the word is usually associated with a business perspective in mind.

Major Components

There are two major parts of accounting: Bookkeeping and Analysis.

Bookkeeping (also known as Financial Accounting), as the name implies, is where an accountant would summarize and record the company’s financial information. This involves the recording of all company transactions, including purchases, expenses, and sales. It will then be summarized by way of financial statements which will give a condensed version of the overall financial health of the company.

In other words, an accountant that will conduct bookkeeping will help organize financial data in a way that will help the company effectively manage its finances moving forward.

A typical financial statement would include information such as how much each customer owes the company, how profitable the business is, and so on.

The analysis portion is under the umbrella of management accounting and it provides useful information for analysis. It will then help the company make business decisions, and to help plan for future motives and to also help with the control of the business.

The Importance of Accounting

From a legal standpoint, accounting can help organizations determine their obligations and financial rights. Without it, it will be hard for any business to calculate all of the financial obligations a company must deal with at a certain timeframe. The preparation and management of accounting records could also be a part of the legal responsibility of any company as well.

Accounting is needed to have a more systematic approach to recording the financial data of any business. An accountant would create financial statements which will give an overview of every financial activity the business does in a given period of time.

Accounting can also provide useful information that will help influence managerial decisions such as purchasing and pricing decisions and limiting factor analysis.