The World of Accounting and Finance

accounting can be defined as "The systematic recording, reporting, and analysis of financial transactions of a business. The person in charge of accounting is known as an accountant, and this individual is typically required to follow a set of rules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit."

In everyday speech, the terms "data" and "information" are often used interchangeably. However, in the context of accounting systems, the terms have distinct meanings – data is raw facts, such as a group of figures, a list of names and such like, whereas information is data which has been processed in such a way as to be meaningful to the person who receives it. The difference might be summarised as follows:

Data + Meaning = Information

Today, the vast majority of organisations operate computerised bookkeeping and accounting systems. These systems take data from the various activities of the business and turn that data into meaningful financial information. The basis on which this transformation from data to information takes place are the rules, principles and practices of accounting which we shall examine in this course. You should note that, whilst most financial information is obtained from computerized systems, it is most important that these rules, principles and practices are fully understood so that you are able to acquire the right information and interpret it correctly. Indeed, there remain many managers and employees who face major problems in obtaining coherent and comprehensive information they need from these systems.

Financial and Management Accounting

Accounting may be split into financial accounting and management accounting.

Financial accounting

Financial accounting comprises two stages:

 

book-keeping, which is the recording of day-to-day business transactions; and preparation of accounts, which is the preparation of statements from the book keeping records; these statements summarise the performance of the business –  usually over the period of one year.

Management accounting

Management accounting is defined by the Chartered Institute of Management Accountants as: "The application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in the planning and control of the operations of the undertaking".