Accountancy is the process of recording, storing, retrieval, summarizing, and presenting financial transactions and position of a business in various reports and analysis. Accountancy is a subject of study and a profession that focuses on performing the above-mentioned tasks. The data is mostly financial and expressed in monetary terms. Accountancy is a measurement and communication process that is used to report on the actions of profit-making businesses. It provides information that allows users of the data to make informed judgements and decisions relating to the activities of the business.

Characteristics of Accountancy

  1. Identification of Financial Transactions and Events- Accounting simply keeps track of transactions and events that can be measured in monetary terms. This includes identifying whether transactions are considered to be part of economic activity or not.  Bills and receipts of transactions are used as evidence to identify such transactions.
  2. Measuring the Identified Transactions- Accounting measures transactions and events in terms of a standard unit of measurement (that is the currency of a country). To put it another way, financial transactions and events are measured in monetary terms. An event that cannot be quantified in monetary terms is not recorded in the accounting records. For example, events such as the level or quality of a management team or the employment of a manager, are not recorded in the books of account.
  3. Recording- Accounting is the practice of documenting company transactions in accounting books. Recording is the process of recording financial transactions in a book of original entry, such as a journal. Subsidiary books include Cash Journal or Cash Book (for documenting cash transactions), Purchase Day Book, Sales day book, and so on.
  4. Classifying- Classification is the process of arranging transactions or entries of the same type together in one place. The transactions in the ‘Journal’ or subsidiary books are grouped or posted to the Ledger, which is the primary book of account. Individual account heads are used in this book to aggregate all financial transactions of the same type. For example, transactions for the purchase of items are placed in the Purchases Account in the Ledger so that the total purchase of products may be determined.
  5. Summarising- This includes presenting the classified data in a way that is both comprehensible and valuable to internal and external accounting statement users. As a result of this procedure, the following statements are created: 1.Trial Balance 2.Trading and Profit and Loss Account or Statement of Profit loss (in case of Companies) 3.Balance Sheet
  6. Analysis and Interpretation- Financial data is analysed and interpreted so that users of financial data may assess the profitability and financial status of the company. This makes it easier to plan on a sound basis.
  7. Communicating- Finally, the accounting function includes conveying financial information to its users, i.e., financial statements. Accounting data must be made available to users in a timely manner so that choices may be made at the right time.
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Managerial Accounting

Managerial accounting is for internal use only and gives detailed information to the company’s managers. Managers may utilise the data for a variety of uses ranging from broad, long-term planning to comprehensive explanations of why actual expenses differed from forecasts. Cost Accountants are the employees of a business who conduct these managerial accounting functions. Managerial accounting is more concerned with creating forward-looking estimates and making decisions that will affect the organization’s future unlike financial accounting that is concerned with historical recording and compliance.

Characteristics of Management Accounting

  1. Selective Nature-Out of the vast amount of data offered by the financial accounting system, management accounting selects just a few items of information that are relevant and important. The reason for this is that all financial accounting data is not required by management.
  2. Provides only information but no decision-Financial accounting data is given on a variety of bases and in a variety of formats to assist management in effective planning and making sound decisions. It is up to management leaders’ intelligence to make sound decisions based on available data.
  3. Causes and Effects Relationship-Profit and loss accounts are generated under the financial accounting system to determine the amount of profit earned or loss sustained. It does not explain why such a large profit was made or a large loss was incurred. However, through analysis, the management accounting system studies the cause-and-effect relationship that exists between the factors that impact business activity and profitability.
  4.  Importance to Elements of Costs-Under the management accounting system, the entire cost is separated into fixed, variable, and semi-valuable types. Furthermore, it emphasizes the nature and features of each of these expenses in relation to different production levels.

Conclusion

Accounting is defined as the process of documenting financial transactions in books of accounts, classifying them into different heads and subheads, summarizing accounting data into reports and financial statements, and evaluating financial data to aid decision-making. Both Financial and Management accounting are important for the smooth operations of the businesses and the industries.