Legal Definitions - accounting

Accounting is the process of accurately and timely recording, analyzing, summarizing, and classifying financial transactions of a business. This means keeping track of all the money that comes in and goes out of a company. Accountants or Certified Public Accountants usually handle the accounting procedures of a business or person. They use financial records called financial statements to keep track of the company's finances.

There are different types 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.

Accounting procedures usually follow generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) when preparing financial statements.

For example, if a company wants to know how much money it made in a year, it would use financial accounting to create an income statement. If a company wants to know how much it costs to make a product, it would use cost accounting to analyze the production costs. These examples illustrate how accounting is used to keep track of a company's finances and make informed business decisions.