What is Accounting

What is Accounting definition:

  • Accounting is a career in which Accountants identify events within an organization.  
  • They then quantify these events in dollars and cents so that they can record these as journal entries or notes.
  • All this is done under the guidance of Principles of Accounting created by the FASB or Financial Accounting Standards Board.

The Accountant must recognize all economic events:

An Accountant must recognize all events past, current and future that will have an effect on the economic activity of an organization.

For example, if there is a pending lawsuit against a company, the Accountant will at least make a note in the financial statements that this liability exists.

If it is known that a lawsuit will result in payment by the company, then a liability will be set up on the company's balance sheet.

Education needed by an Accountant:

  • Accounting usually is done by degreed Accountants who should not be confused with Bookkeepers.
  • An Accountant is more highly educated and trained to identify events that must be recorded and to present financial results to management or interested parties.

Importance of Accounting:

The importance of accounting shouldn't be underestimated. Without it, no one would really know what a company's financial health was.

With well structured principles and guidance, the Accountant is able to report the economic conditions of a company through the financial statements.

Management and others can then make good decisions about the company.