Lesson 1. DEFINITION AND BRANCHES OF
ACCOUNTING
1. The Need for Economic Information
Chaotic situations won’t be successful. In order to succeed, all
organizations must keep record/track and control of their activities. Every
entity must have a way to keep track of its economic activities and
measure how well it is accomplishing its goals. Accounting provides the
means for tracking activities and measuring results.
Accountants measure and communicate/report the results of business
activities, they keep score. Accountants also advise managers on how to
structure business activities so as to achieve the goals of the company
(generate profit, minimize costs, provide efficient services…).
2. Definition of Accounting
The definition of accounting, provided by the American Accounting
Association, follows: It is the process of identifying, measuring and
communicating economic information to permit informed judgements and
decisions by users of the information.
The main purpose of Accounting is to provide information that is useful to
users in making economic decisions. The information that is supplied by
Accounting relates to specific economic entities.
An economic entity may be a household, a business entity/company, a
non-profit organization or a country.
-Household Accounting
-Business Accounting : A system designed to record, measure and
communicate information about businesses in the form of summary
reports used by management and people outside the company to
make decisions.
-Governmental Accounting
-National Accounting
Accounting is an information system consisting of a set of interrelated
functions aimed at process data into useful summary reports. These
functions are:
1) Preparing information :
a) Identifying business events to determine if information should
be captured by the Accounting system.
b) Determining the euro amounts at which the items affected by
business transactions must be recorded.
c) Recording the effects of business transactions.
2) Communicating/reporting information :
a) Preparing summary accounting reports.
b) Making accounting reports available to users.
3) Auditing : Verification of accounting information by external
independent experts, the auditors. They check that the Accounting
system is running as designed and that the resulting accounting
reports fairly represent the financial performance of the company.
