Accounting

Every business makes sales, pays bills, buys equipment and borrows money. Accounting captures each of these events, sorts them into categories and summarises them in reports, mainly the financial statements.

Accounting has several branches. Financial accounting produces reports for people outside the business, such as investors, lenders and tax authorities, and follows standard rules so that companies can be compared. Management accounting produces internal information for managers, such as product costs, budgets and forecasts. Tax accounting focuses on calculating what is owed to tax authorities.

Accounting is often called the language of business, because it gives everyone a common way to describe results. When a company reports revenue of 10 million and profit of 1.2 million, those figures mean something specific because they are prepared under agreed rules.

Good accounting builds trust. Banks need reliable figures before lending, investors need them before buying shares and managers need them to make sound decisions. That is why many companies have their accounts independently checked by auditors.