What Is Accounting? Definition and Basics, Explained


Accounting is the recording of financial transactions along with storing, sorting, retrieving, summarizing, and presenting the results in various reports and analyses. Accounting is also a field of study and profession dedicated to carrying out those tasks. In recent years, there has been a growing demand on the part of stakeholders for information concerning the social impacts of corporate decision making. Increasingly, companies are including additional information about environmental impacts and risks, employees, community involvement, philanthropic activities, and consumer safety. Much of the reporting of such information is voluntary, especially in the United States.

Cost accounting is most commonly used in the manufacturing industry, an industry that has a lot of resources and costs to manage. It is a type of accounting used internally to assess a company’s operations. Qualified accounting professionals are thus in high demand across the board. Students generally work towards completing a major research project, with other assessment methods including reports, group presentations and portfolios.


FINANCIAL STATEMENT presentation in which the current amounts and the corresponding amounts for previous periods or dates also are shown. FINANCIAL STATEMENT comprising the accounts of two or more entities. Mixing ASSETS, e.g. customer-owned SECURITIES, with those owned by a firm in its proprietary accounts. MUTUAL FUND with a fixed number of shares outstanding that may be bought or sold.

Maximum number of shares of any class a company may legally create under the terms of its articles of incorporation. Fund consisting of ASSETS where the holder agrees to remit the assets, income from the assets, or both, to a specified beneficiary in due course or at a specified time. Company, or other organization related through common ownership, common control of management or owners, or through some other control mechanism, such as a long-term LEASE.

Considered “non-investment grade” bonds, these SECURITIES ordinarily yield a higher rate of interest to compensate for the additional risk. A U.S. taxpayer that pays or accrues income tax to a foreign country may elect to credit or deduct these taxes in a determinable us dollar amount. This is usually done on the annual individual tax return and there is s specific form provided for this.

Periodic Inventory System

In addition to this financial overview, proper accounting practices prepare your business to file taxes and produce financial statements needed for potential investors or business loan applications. Managerial accounting analyzes the information gathered from financial accounting. It refers to the process of preparing reports about business operations.


An investment strategy aimed at long-term capital appreciation with low risk; moderate; cautious; opposite of aggressive behavior; show possible losses but wait for actual profits. Portion of the total GAIN recognized on the sale or exchange of a noninventory asset which is not taxed as ORDINARY INCOME. Capital gains have historically been taxed at a lower rate than ordinary income.

Analyzing Financial Statements

Financial plan that serves as an estimate of future cost, REVENUES or both. Amount, net or CONTRA ACCOUNT balances, that an ASSET or  LIABILITY shows on the BALANCE SHEET of acompany. The beta is the covariance of a stock in relation to the rest of the stock market. Basic FINANCIAL STATEMENT, usually accompanied by appropriate DISCLOSURES that describe the basis of ACCOUNTING used in its preparation and presentation of a specified date the entity’s ASSETS, LIABILITIES and the EQUITY of its owners. Increase in the value of an ASSET such as a stock, BOND, commodity, or real estate.

  • A taxpayer may elect to amortize such expenses for a tern no less than 60 months.
  • See the world through the lens of economics and gain the knowledge and skills to craft successful business strategy.
  • The costs of organizing a trade or business or for profit activity before it begins active business.
  • The need for international accounting expands alongside growth within international markets.

Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants and regulate the practice of public accountancy in the United States. Average of SECURITY or COMMODITY prices constructed on a period as short as a few days or as long as several years and showing trends for the latest interval. Legal instrument evidencing a security interest in ASSETS, usually real estate. The use of an intermediate agent, such as a bank, to disguise the source of money received from illegal activities. A mandatory system of DEPRECIATION for income tax purposes, enacted by Congress in 1986. Designing and manipulating a mathematical representation of an economic system or corporate financial application so that the effect of changes can be studied and forecast.

Hope Scholarship Credit

A ratio that shows the average length of time it takes a company to receive payment for credit sales. The average number of days required to sell the current inventory of products available for sale. It is found by dividing the number of days in a year by inventory turnover.

  • Development is the translation of research findings into a plan or design of new or improved products and services.
  • OPEXs describe costs that arise from a company’s daily operations.
  • Tax on the value of a DECENDENT’S taxable estate, typically defined as the decedent’s ASSETS less LIABILITIES and certain expenses which may include funeral and administrative expenses.
  • Fund consisting of ASSETS where the holder agrees to remit the assets, income from the assets, or both, to a specified beneficiary in due course or at a specified time.
  • A technique for analyzing FINANCIAL STATEMENTS that uses percentages to show the relationships of each stated item to the total, which is 100 percent of the figure in a single statement.

In some jurisdictions, summary financial statements are available (or may be required) on a quarterly basis. These reports are usually sent to all investors and others outside the management group. Some companies post their financial statements on the Internet, and in the United States the financial reports for public corporations can be obtained from the Securities and Exchange Commission (SEC) through its website. The preparation of these reports falls within a branch of accounting known as financial accounting. An auditor reviews financial accounts of companies and organizations in order to ensure the validity and legality of their records.

Dependent Care Expenses

An independent private sector body, formed in 1973, with the objective of harmonizing the Accounting principles which are used in businesses and other organizations for financial reporting around the world. Its members are 143 professional accounting bodies in 104 countries. Report to the stockholders of a company which includes the company’s annual, audited BALANCE SHEET and related statements of earnings, stockholders’ or owners’ equity and cash flows, as well as other financial and business information. Accountants track partial payments on debts and liabilities using the term “on credit” (or “on account”).

The use of borrowed funds to increase the profit from an investment. Owner of property, the temporary use of which is transferred to another (LESSEE) under the terms of a LEASE. Individual or firm that extends money to a borrower with the expectation of being repaid, usually with INTEREST. Agreement providing that portions of lease payments may be applied toward the purchase of the property under lease. Doctrine that interference of government in business and economic affairs should be minimal.

Market Interest Rate

But it does follow standard accounting practices taught in accounting school. Financial accounting is performed with potential lenders and investors in mind, as well as GAAP. This specialized accounting service is trending in accounting and is becoming increasingly popular. Such as inquiry into fraud, legal cases and dispute and claims resolution. In this video, AAA Past-President Karen Pincus hosts a panel of fellow AAA Past-Presidents to get insights on their experiences, and the changes, growth, and future of the Association. Past-Presidents include Nancy Bagranoff, Bill Beaver, Joel Demski, Kevin Stocks, Mary Stone, Gary Sundem, Pete Wilson, and Jan Williams.

What’s it like to study accounting?

Executive officer who is responsible for handling funds, signing CHECKS, keeping financial records, and financial planning for a CORPORATION. A way of measuring the ability of sales to generate operating CASH FLOWS. Short-term (generally less than three months), highly liquid INVESTMENTS that are convertible to known amounts of cash. Amount, net or CONTRA ACCOUNT balances, that an ASSET or LIABILITY shows on the BALANCE SHEET of a company. Collection of formal, written rules governing the conduct of a CORPORATION’S affairs (such as what officers it will have, what their responsibilities are, and how they are to be chosen). Bylaws are approved by a corporation’s stockholders, if a stock corporation, or other owners, if a non-stock corporation.

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