What Is Accounting and Why Is It Necessary?

Accounting is the practice of recording and interpreting business financial information to produce crucial reports like balance sheets, cash flow statements and profit-and-loss reports. It requires meticulous record-keeping and financial transaction tracking year-round. Accounting enables a company to know how much it owes to its vendors and customers, whether or not it is making a profit, and its current overall financial position in terms of assets, liabilities and owner’s equity. Accurate accounting is also necessary for filing taxes, securing investors and applying for loans. In fact, when deals made on reality shows such as Shark Tank or The Profit fall apart, it’s almost always because of problems with the company’s accounting paperwork.

Financial accounting: This is the type of accounting that most people think of when they hear the word “accounting.” It focuses on producing reports for external users such as investors, creditors and regulators. It involves the systematic record-keeping and tallying of all financial transactions and events in accordance with a set of standards such as GAAP or IFRS.

Cost accounting: This is a form of financial accounting that seeks to determine the most cost-effective methods for a company’s day-to-day operations. Its purpose is to provide a more accurate picture of how much it costs a business to operate, so that managers can make informed decisions about how to cut costs and save money for the future. Buchhaltung

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