Introduction to Accounting

Accounting is the language of business. Accounting is the process of recording, summarizing, analyzing, and interpreting financial (money-related) activities to permit individuals and organizations to make informed judgments and decisions. It is analyzing an economic entity’s financial transactions.

Effectively communicating this information is key to the success of every business. Those who rely on financial information include internal users, such as a company’s managers and employees, and external users, such as banks, investors, governmental agencies, financial analysts, and labor unions.

Father of Accounting: Luca Pacioli

Types of Accounting and Users of Accounting Information:

"Types of accounting and users information"
Financial accounting provides information that is designed to satisfy the needs of external users. Such reporting is usually done in the form of financial statements.

Investors: (i.e., owners), who use accounting information to make buy, sell or keep decisions related to shares, bonds, etc.
Creditors: (i.e., suppliers, banks), who utilize accounting information to make lending decisions.
Taxing authorities: (i.e., Internal Revenue Service), who need accounting information to determine a company’s tax liabilities.
Customers: who may need accounting information to decide which products to buy from which companies


Managerial accounting provides information that is useful in running a company by internal users. Such reporting is usually accomplished through custom-designed (or managerial) reports.

Management: A company’s senior and middle management, who use accounting information to run the business.
Employees: who use accounting information to determine a company’s profitability and profit sharing.

The Elements of Accounting:

Assets:  Assets are items with money value that are owned by a business. Some examples are:cash, accounts receivable (selling goods or services on credit), equipment (office, store,delivery, etc.), and supplies (office, store, delivery, etc.).

Liabilities: Liabilities are debts owed by the business. Paying cash is often not possible or convenient, so businesses purchase goods and services on credit. The name of the account used is Accounts Payable.Another type of liability is Notes Payable. This is a formal written promise to pay a specific amount of money at a definite future date.

Owner’s Equity: The difference between Assets and Liabilities is Owner’s Equity. The can also be called capital, proprietorship, or net worth.

The Accounting Equation: Assets = Liabilities + Owner’s Equity

This equation must always balance!

Taxation Accounting:

Taxation Accounting relates to following the specific rules set by Internal Revenue Code.

All companies and businesses must follow these rules while filing their taxes, and that is where taxation Accounting comes in to the picture. This type of accounting places an emphasis on the taxes themselves and not the public financial statements. Obtaining a Master’s Degree of Laws in Taxation online may illuminate some of the more complex aspects of this type of accounting, such as:

  • Prepaid Income
  • Principles of Income Recognition
  • Constructive Receipt
  • Estimated Expenses
  • Depreciation
  • Expense versus Capitalization

Human Resource Accounting:

Human resource Accounting is the process of identifying and reporting the Investments made in the Human Resources of an Organization.

In simple terms, it is an extension of the Accounting Principles of matching the costs and revenues and of organizing data to communicate relevant information in The Quantification of the value of Human Resources helps the management to cope up with the changes in its quantum and quality so that equilibrium can be achieved in between the required resources and the Human Resource Accounting provides useful information to the management, financial analysts and employees as stated below:-

  1. Human Resource Accounting helps the management in Employment and utilization of Human Resources.
  2. It helps in deciding transfers, promotion, training and retrenchment of human resources
  3. It provides a basis for the planning of physical assets vis-a-vis human resources
  4. It helps in evaluating the expenditure incurred for imparting further education and training of employees in terms of the benefits derived by the firm.
  5. It helps to identify the causes of high labor turnover at various levels and taking preventive measures to contain it.
  6. It helps in locating the real cause for low return on investment, like improper or under-utilization of physical assets or human resources or both
  7. It helps in understanding and assessing the inner strength of an organization and helps the management to steer the company well through the most averse and unfavorable circumstances.
  8. It provides valuable information for persons interested in making long term investments in the firm.
  9. It helps the employees in improving their performance and bargaining power. It makes each employee understand his contribution towards the betterment of the firm vis-a-vis the expenditure incurred by the firm on him

Social Accounting:

Social accounting is the process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large.

It also known as social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting, or accounting.

Society is seen to profit from implementing a social and environmental approach to accounting in a number of ways, like:

  • Honoring stakeholders’ rights of information;
  • Balancing corporate power with corporate responsibility;
  • Increasing transparency of corporate activity;
  • Identifying social and environmental costs of economic success.


Source: wikipedia



(Visited 24 times, 1 visits today)

Leave a Reply