Accounting is one of the fundamental skills you need to learn in business.
What do you think Accounting is? How would you explain to others? This is going to be learning for you to understand the definition and also to be able to use your keywords to explain what it means. Make sure you take some time to practice on your own.
There are many ways to describe these type of generic keywords, and I would use the following definition to explain to others.
What is Accounting?
“Accounting is a process and system to record financial transaction based on business activities and summarise to create financial statement for stakeholders to communicate business performances.”
I intentionally used some of the keywords such as “process”, “business activities”, “communicate business performances” and I will explain the reason why.
Accounting requires establishing a standard process to collect financial information. Accounting must follow accounting principles because every company must disclose their financial statement under certain rules to be able to compare the figures. Therefore designing a process to collect financial information is what we need to focus when we are in a business organisation.
Accounting is based on business activities. We need to record financial transactions when we do business. This is the ultimate reason why every business professionals are required to learn Accounting. Although you may not be in Accounting organisations, you are involved in collecting financial information through business activities.
“Communicate Business Performances”
Accounting is used to communicate financial information to other parties of the company. Why do we need to communicate? This is to show how well you have performed in business and to show the assets you can use to generate more business performances and also to show how healthy you are to stabilise your business. Who are the other parties? They can be employees, customer, supplier, banks, investors, and shareholders. They all have different objectives to review and assess your financial statements, but they need this financial information to compare with other companies to decide directions on the business for their future.
Reference on Other Definition
Let’s take a look at how other sources and professionals define Accounting. I picked from 2 websites that I refer to getting financial information as business consultant.
“Accounting is the recording of financial transactions plus storing, sorting, retrieving, summarising, and presenting the information in various reports and analyses. Accounting is also a profession consisting of individuals having the formal education to carry out these tasks.”
“Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities.”
Both of the definition makes a perfect point doesn’t it? Accounting requires the profession to execute the task is an interesting point. This is why we need accountants who has been trained, skilled and experienced in financial processes in order to record, summarise and manage financial transactions. However, in our definition, we wanted to make the dfinition more of an effort for the entire organisation to manage financial information because it is not only the accountants who will record the information on their own, it is an effort involving other organizations to proceed the standard process when we do business activities. Now we use information technologies to record financial transactions, which makes it more complicated because sales, procurement, warehouse departements will record the transactions based on their business activities and accountants have less control over when and how financial records are booked in these systems.
What are the keywords will you include in your definition of Accounting? We would love to get your input in the comment section so that everyone can have their way of expressing and what it means to our business.