Accounting is the science of gathering, recording, and communicating information about financial transactions and events. Accounting is used to represent the various financial transaction as a source of information. The accounting reports are used for a wide variety of purposes such as setting forth an effective control over the financial resources of a company. The accounting profession involves the collection, recording, interpretation, maintenance of accurate financial records.

Generally, accounting provides information about an individual’s or a company’s income and assets. The information contained in the accounting provides decision makers with essential knowledge about the health and growth of a business. Accounting provides information on the financial condition of the business and the resources available to the company in order to determine the price that a company can sell its product or service to the consumer. The accounting process also provides the basis for planning and forecasting.

The importance of accounting cannot be denied even after the transactions are processed. Even after the transaction processing are completed, the accounting period is vital for the assessment of the performance of the company. The period of accounting determines the actual and pro rata portion of the income or assets of the company. This is considered necessary since the difference between actual and pro rata portion is the basis for determining profitability. Accounting provides guidelines for the proper measurement of the financial activities and helps in the analysis of the financial statements.

The accounting helps in the determination of the liability and equity of the company and provides guidelines for the calculation of taxes. Proper financial statements are required for the review and approval of bank loans, the purchase of intangibles such as equipment, property, and land, and financing options. Other uses of accounting include internal control measures, preventive management, risk management, equity portfolio analysis, asset valuation, and credit analysis among others. Accounting helps in the preparation of the annual financial reports and is therefore, an essential part of the overall business accounting system. In short, accounting provides essential information to decision makers in order to assure correct business decisions.

Accounting has two main branches bookkeeping and accountancy. Bookkeeping involves the collection of information regarding the financial activities of the business. Accountancy on the other hand, is concerned with the preparation and analysis of financial statements at the end of a year to meet the requirements of a particular year’s financial reports. Every business or organization must have a well-functioning internal finance department to properly manage its resources. Without proper financial reporting, managers and leaders cannot make the right financial decisions and evaluate the business’s performance. Therefore, accounting helps in the determination of the appropriate managerial roles, analyzing the managerial and leadership skills, planning the resource allocation, maintaining accurate cash flow, analyzing the cost of doing business, setting goals and monitoring performance.

Accounting is one of the major parts of finance and management that summarises, assesses, and communicates the financial information of a company to decision makers. The process of summarising transactions and events, the preparation of forecasts and future values, communicating the financial information, reporting, and interpreting the financial data are known as the basic activities of accounting. The summary of the transactions and events and the preparation of forecasts and future values constitute part of the activities of accountancy.