Definition of accounting
The concept of accounting can be explained by the process of recording financial transactions and procedures carried out by a commercial establishment, and it includes summarizing and analyzing the financial data resulting from commercial transactions and preparing reports related to them in a way that enables the supervisory and regulatory bodies, and tax departments to view them accurately and correctly, and summarizes the financial data used in accounting All financial transactions that took place in a specific period of time and show the financial position of the enterprise and its cash flows.
Accounting bodies have provided technical definitions of accounting, for example, the definition of the American Institute of Certified Accountants (AICPA) that accounting is the art of recording and summarizing financial transactions or transactions that contain at least one financial part and recording the results of these operations in an expressive way.
The importance of accounting in the business world
Accounting is a combination of art and science. This is because it requires creative skills in judging financial results, and this requires training in this field so that the practitioner can perform the various accounting functions effectively and professionally. It also requires scientific and cognitive skills, but it is not an exact science because the rules and principles of accounting change and evolve constantly to improve special operations. with it.
The main aspects of accounting Accounting consists of 3 main aspects, as follows:
Record keeping system
This system requires the use of a standard set of accounting policies and procedures using unified standard forms. The procedures include controls that ensure the use of the assets of the establishment in the manner required to achieve its objectives. Usually, establishments use ready-made and commercially available accounting software as a basis upon which the record-keeping system is built to ensure the best use of it for the establishment.
Transaction tracking system
Collecting information about each type of commercial transaction requires a separate procedure, for example, the establishment needs different systems to implement customer requests, issue invoices, collect revenues, etc., and tracking information is the most time-consuming part of the accountant. [4] Preparing financial reports This process takes place. In a specific way according to Generally Accepted Accounting Principles (GAAP) and International Accounting Standards (IFRS), which determines the method that should be used in processing business transactions in the records and compiled in the financial statements, which are the income statement, the balance sheet, the statement of cash flows, and the disclosure statements, which give results The financial period and the financial position of the facility at the end of that period.
Types of accounting
Accounting includes many types related to various financial and commercial transactions, the most important of which are the following:
Financial Accounting: It includes recording and classifying financial and commercial transactions and preparing financial data for use inside and outside the facility. In preparing this data, emphasis is placed on conforming to generally accepted accounting principles (GAAP). This type of accounting is also concerned with data bearing dates.
Management accounting: focuses on providing information for internal use in the organization and specifically for the use of decision makers, and thus focuses on their information needs more than compliance with generally accepted accounting principles. Management accounting includes financial analysis, budget planning, cost analysis, evaluation of business decisions, and the like.
Tax accounting: aims to help clients comply with applicable tax laws, and includes tax planning, consulting services to reduce tax by legal means, and assess the results of tax decisions and matters related to them.
Cost Accounting: Cost accounting is one of the departments of management accounting and refers to the recording, presentation and analysis of facility costs. This type is very important in industrial businesses that include complex cost inputs.
Fiduciary accounting: It is based on trusting a single entity to deal with financial accounts, so that this entity adheres to accounting procedures related to real estate, trust funds, investments, and others, on behalf of their clients, and also provides financial information to clients annually; Including a summary of all accounts, schedules of receipts, gains, losses, and assets they own and may dispose of.
Forensic accounting: it reconfigures the financial information of the enterprise in the event that some information required for review is missing; With the aim of collecting all documents and accurately recording all credit and cash transactions in the financial statements, this type of accounting is often involved in legal cases related to fraud, claims, and disputes.
Public Accounting: It provides accounting advice to its clients based on their needs, such as: auditing, tax procedures, procedures necessary to use specific technology or computer programs, and legal advice.
Government Accounting: That is, financial planning, allocating resources to various local or federal government departments, and monitoring the government budget. It operates based on Government Accounting Standards (GASB).
Accounting information systems: This type of accounting helps to improve accounting procedures, as its workers can monitor the productivity of these procedures within a specific time frame, as well as suggest the introduction of updated technology to improve it, and workers in this field, in conjunction with the information technology department, can make decisions to install and continuity these technological processes .
Accounting auditing: It is considered a branch of public accounting. It consists of an external audit aimed at examining the financial statements by an independent external party to express an opinion on the fairness of the data and its compliance with generally accepted accounting principles, and an internal audit aimed at evaluating the adequacy and efficiency of the organizational structure in monitoring and internal control in the enterprise.
Accounting principles
Accounting principles are defined as a set of general rules that must be followed when preparing financial statements that are distributed to users from outside the enterprise, and include the following basic principles, guidelines and accounting assumptions:
cost principle.
matching principle.
The principle of full disclosure.
Revenue recognition principle.
Principles of materialism, conservatism, consistency, and others.
Sector regulations.
accounting uses
Accounting is used in many areas in the business world, and the most important of these uses are the following:
Paying taxes: Accounting data is used to complete the tax calculation and submit it on time.
Loan insurance: Accounting data helps lenders determine the eligibility of borrowing facilities and their ability to repay.
Fulfilling the requirements of the regulatory authorities: Some establishments must submit detailed reports on their financial position to the regulatory authorities, and accounting data provides the basis for these reports.
Providing shareholders with financial reports: Shareholders in the facility require detailed financial information based on accounting records to assess the financial solvency of the facility and, accordingly, the potential of their investments.
Providing capital markets with financial reports: Capital markets require accurate accounting and financial data for companies participating in the financial market, which are affected by the share prices of these companies.
Communicating with managers: establishments must announce their financial status to managers through detailed financial and accounting data and reports to estimate budget and costs; This is to assist them in the decision-making process, cost planning, and measuring the economic performance of the facility.
The Importance of Accounting for a Small Business Small business is advised
Paying serious attention to accounting because of its importance in proper planning and avoiding wrong financial practices. Among the most important contributions of accounting to the development of small businesses are the following:
Planning for growth: Financial statements help small businesses assess the speed at which the business is growing and developing, and without them, these businesses tend to adopt easy measures to evaluate work, such as sales growth, which do not give a complete picture of the financial situation and readiness of the enterprise for growth.
Loan insurance: accounting helps to provide and display updated financial data on the business; Which helps them to secure loans and grants.
Revenue collection: The existence of a balance of payments from accounting facilitates the process of tracking revenue collection effectively, as the establishment can set methods and appointments for collection and for follow-up with customers, thus ensuring that cash is available when needed.
Exemption from fines and penalties: Proper accounting provides complete and accurate accounting records which in turn reduces the risk of violating tax laws and ensures that tax calculations are completed accurately and on time.
Accounting and its types can be defined briefly as the process of recording financial procedures and transactions carried out by a commercial establishment, through recording in records, tracking transactions and preparing reports, whether for administrative, financial, tax, criminal, or other accounting purposes. Accounting is based on important principles ; As the principle of cost, matching, full disclosure, revenue recognition, and the importance of accounting in small businesses and large projects, as it is used to pay taxes, secure loans, fulfill the conditions of regulatory authorities, and other uses.
