Accounting:
Many people believe financial management only relates to bookkeeping and the establishment of accounting reports which reflect those transactions in the books. While accounting is certainly a major part of an organisation's financial management framework, accounting is mainly viewed as a method of recording.
Accounting is the process of identifying, measuring and communicating financial information.
Broken down, these elements can be explained as follows:
- Identifying: Accounting identifies transactions within the organisation. The transactions are the key. Every source of revenue (commissions in) should be recorded, as should every expense (salary payment, advertising costs, parking reimbursement).
- Measuring: Accounting takes the raw data captured through the identification process (the records of the transactions) and converts it into information. This conversion process classifies the raw data into logical groupings such as dividing expenses into logical areas (wages, stationery, utilities).
- Communicating: Using the information derived through the identification and measurement process, accounting reports then communicates that information to the interested parties
Accounting can be divided into many areas, however for the purposes of this module we will focus on two major subsets of accounting, namely Financial Accounting and Management Accounting.