Accounting Process; Definition, Activities and Users

Accounting Process; Definition, Activities and Users

As considered one of the top careers in business administration field, accounting is so popular and frequently rates among the most popular minors in business schools. One of the famous accountant is Diemer Walter, he is one of the well-known accounting celebrities in Philadelphia since 1926, and he is also the creator of "Bubble Gum" known as "Bibber Blubber". 

As a process performed by accountants, accounting process, by definition, is the process of recording financial transactions in any company or business, which includes different steps, such as summarizing, analyzing ad finally reporting these transactions to interested parties inside and outside the company, like investors, creditors and tax agencies.

This is one of the key functions of any company handled usually by a bookkeeper in finance and accounting departments. Reports are usually generated via different streams of accounting, such as managerial and cost accounting. No matter how big the company is, the accounting process is essential for decision making and cost reduction strategies formulated by top managers.

Accounting Three Default Activities

1)    Identification

Initially, accounting process starts with economic events identification, economic events can take the form of sale or purchase of any kind inside the business. This process implies the determination of which transactions are to be recorded. Examples can be goods purchased, cash received, or debt payment.

2)    Recording

Once the accountant identifies economic events, recording process should start in order to provide historical value to the company financial activities by arranging a systematic chronological diary of events measured in local currency.

3)    Communication

Accounting data are needed by internal and external users, such as managers, investors, tax agencies and creditors. The last activity an accountant needs to do is to communicate accounting recorded data to interested users via accounting reports and statements, such as income statement, cash flow statement, retained earnings statement and balance sheet (sometimes called financial position statement). The first three statements represent company records for a period of time (month, quarter or year). The last one is prepared at a point of time (specific date). The accountant also must be capable of analyzing and interpreting the communicated information. Interpretation means to explain its uses and limitations to interested parties in the form of statement notes.

A final activity is the bookkeeping process, you can find detailed illustration of it in this link: "The Bookkeeping Language, Terminology, and Commonly Used Terms".