Accounting is the practice of accurately and timely recording, analyzing, summarizing, and classifying financial transactions of a business. Commonly, those financial transactions are recorded in a set of financial records called financial statements.
Accountants or Certified Public Accountants usually handle the accounting procedures of a business or person. In most cases, accounting procedures adhere to generally accepted accounting principles (GAAP) when preparing financial statements. In some countries, accounting procedures may use International Financial Reporting Standards (IFRS).
Among others, the following are some categories of accounting practices:
- Financial Accounting: This is the most common type of accounting. It refers to the process of generating interim and annual financial statements.
- Managerial Accounting: Although this category uses the same information as financial accounting, such information is used to make business decisions, such as budgeting and forecasting.
- Cost Accounting: Mainly focused on analyzing the costs related to the production of a product by a business to establish its selling price.
The case Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S.Ct. 3138 (2010) offers a detailed example of accounting in a legal context.
[Last updated in June of 2022 by the Wex Definitions Team]