accounting

Accounting

The practice or profession of maintaining financial records, noting expenses or revenue, and determining how much one owes or is owed. Accounting seeks to assure that every individual or company pays or is paid the correct amount. There are several different types of accounting, each of which reports revenue and earnings differently from other methods. Two major accounting methods are accrual accounting and cash accounting. Accrual accounting recognizes revenue and matches it with the expenses that generated that revenue. Cash accounting, on the other hand, recognizes revenue and expenses in the order in which they are received or spent.

Accounting is important in personal finance as well. One must maintain accurate records to ensure that enough money remains to pay one's bills. Likewise, accounting is necessary to pay personal or corporate taxes in the correct amount. See also: CPA, LIFO, FIFO.

Fig. 3 Accounting. A typical data-recording sequence.

accounting

the process of recording a firm's financial transactions in appropriate book-keeping records and of summarizing this information in the form of accounting reports, using acknowledged methods and conventions. FINANCIAL ACCOUNTING is geared to the preparation of summary reports for the shareholders or owners of the business, while MANAGEMENT ACCOUNTING is geared to the preparation of more detailed reports for managers. Fig. 3 shows a typical data-recording sequence.