What is accountancy?
Accountancy is recording, classifying, and reporting data of a business’s day-to-day transactions, analyzing them, and reporting that to the stakeholders. Accountancy is the process of connecting a business to its stakeholders. It also provides proper financial information to the management. The process of accountancy is shown below:
The recording is a process of accountancy. It includes collecting data from any transaction and analyzing them finding out the related accounts and recording them in the journal book.
There are some transactions that are repetitive, for example issuing invoices, paying the supplier, recording cash receipts from customers, and paying employees. These repetitive transactions need a billing clerk, payables clerk, cashier, and payroll clerk, respectively. There are also some transactions that are not repetitive, these transactions should be handled by a tax accountant and others.
In this step all the previously recorded data is classified according to their characteristics, this is called general ledger accounts. A general ledger account is a set of different accounts, each of them carries different particular information about a transaction.
Sometimes there are some repetitive high-volume transactions that are subject to sub-ledgers, and only the balance transfers to the general ledger. The balance of ledgers is directly used in creating financial statements.
Reporting is considered as a key features of accounting. In accountancy, we record, and classify data into ledgers and then report them to the related stakeholders. The reporting aspects are divided into two categories.
- Financial Accounting
- Management Accounting
Financial accounting is the process of creating reports according to the GAAP or IFRS. Generally, the general ledger accountant, Chief Financial Officer, and controller are connected with this reporting process. As this reporting is based on rules, violating them may be subject to fines or penalties.
Management accounting is more focusing on business profitability and internal reporting. The key person here is a Cost accountant, Financial analyst, and others. Management accountants report directly to the managers and try to increase the profitability of the business by removing extra costs. There are different costing systems such as activity-based costing, process costing, thruput accounting, etc.
Management accounting isn’t regulated by any accounting framework so a violation of rules isn’t a punishable offense. Though mismatch in creating reports may result in the wrong decision taken by the managers.