Define Accounting

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Next lesson: Basic Accounting Equation

Check out the quiz in the Test Yourself! section further below when you're done with this lesson. And right at the bottom of the page, more questions on the topic submitted by fellow students.

One of the best things one can do when starting to study a subject is to define the subject itself as well as its key words. By doing so one starts to get orientated - one begins to learn what the subject is all about, what its purpose is, what it deals with.

Let's Define Accounting

Okay, so let's define accounting:

Accounting is a system of recording information about a business

what is accounting definition recording system

The information that is collected and recorded is primarily numerical.

This information is then presented in specific formats to various people to help them make business decisions

what is accounting definition report reporting - presenting information to decision-makers

So accounting deals with recording information about a business, which is mainly numerical and helps different people make decisions relating to that business.

The accounting system is used to maintain records for all types of businesses, from single-person businesses to large multinational corporations.

To Account for Something

To account for something means to keep a record of a specific item or transaction in your business by using the accounting system.

What Do Accountants and Bookkeepers Do?

An accountant or bookkeeper collects documentation and records this information, categorizes it (i.e. organizes the different bits of information under certain categories), and presents it in specific formats.

define accounting bookkeeping collecting information categorizing financial

Bookkeepers are usually involved more in data collection and entry.

Accountants can fulfill this role too, but more often these days are involved in preparing and presenting financial statements (see explanation further below), and fulfilling an advisory or consulting role.

what is accountant definition financial statements advisory consulting business strategy

Accountants have even become business strategists, closely involved in guiding the planning and operations of a business.

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Financial Statements

financial statements annual key reports financial position performance cash flows

Accounting information is finally presented in the form of financial statements. 

Financial statements are the key reports of a business. 

Financial statements generally show the financial position of a business, its financial performance and its cash flow management.

Financial statements are generally prepared on an annual basis and specifically for external parties. They must be prepared in accordance with generally accepted accounting principles (in the US) or International Financial Reporting Standards (outside the US).

FYI, these key business reports are fully presented and explained in a later (and more advanced) chapter on its own - financial statements

Financial Accounting vs Management Accounting

You may have heard of the terms financial accounting and management accounting.

Financial accounting is the record-keeping leading to the preparation of annual financial statements (as described above).

Management accounting also involves record-keeping and preparation of reports, showing things like the financial position and performance of the business, but these reports are intended just for internal personnel - executives and managers - and cover a shorter time period (like a month or quarter).

Management accounting often includes budgeting and planning, whereas financial accounting simply provides historical reports.

On this website we'll be dealing mostly with financial accounting.

Test Yourself!

Before you start, I would recommend to time yourself to make sure that you not only get the questions right but are completing them at the right speed.

Difficulty Rating:

Quiz length: 
3 questions

Time limit:
5 minutes

Important: The solution sheet on the following page only shows the solutions and not whether you got each of the questions right or wrong. So before you start, get yourself a piece of paper and a pen to write down your answers. Once you're done with the quiz and writing down your answers, click the Check Your Answers button at the bottom and you'll be taken to our page of solutions.

Good luck!

Define Accounting Mini Quiz:

Please note that all fields followed by an asterisk must be filled in.

Please enter the word that you see below.


Okay, so that's it for our first lesson.

I hope now you can define accounting, accountant and other key terms and understand a bit more about what we're dealing with here.

We'll continue to define more key accounting terms as we move along.

Now it's time to move on to the next lesson, where we'll go over a simple but absolutely crucial equation.

This is not just the single most important equation in the subject, but actually the foundation on which everything in accounting rests.

This is the famous, or infamous, basic accounting equation.

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Previous lesson: Basic Accounting Concepts 
Next lesson: Basic Accounting Equation

Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Usefulness of Accounting? 
Q: As a student, how is accounting useful to me? A: Accounting is the international "language" of business, so if you've ever thought that you may …

What is the Best Way to Study Accounting? 
Q: What is the best way to study accounting? A: I actually published an article on this subject a while back in one of our old newsletters. Here …

Important and Confusing?
Q: Why is this stuff so important and why is it so confusing??? A: Hi Cera, you are not the first and probably will not be the last person to find …

Accounting Control 
Q: What is accounting control? A:

Accountants and Bookkeeperz 
Q: What is the main important difference between accountants and bookkeepers? A: Both accountants and bookkeepers collect and record accounting information, …


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