Definition of Accounting

Accounting can be defined linguistically as a source of a computer verb, and it means controlling and auditing accounts, ^[1] . In a way that enables the supervisory, regulatory, and tax departments to view it accurately and correctly, and the financial statements used in accounting summarize all financial operations that took place in a specific period of time and show the financial position of the facility and its cash flows. ^[2]

Accounting bodies provided technical definitions of accounting, for example, the definition of the American Institute of Certified Accountants (AICPA) that accounting is the art of recording and summarizing financial transactions or transactions that contain at least one financial part and recording the results of these operations in an expressive manner. ^[3]

The importance of accounting in the business world

Accounting is a mixture of art and science ; This is because it requires creative skills in judging financial results, and this requires training in this field so that the practitioner can perform various accounting functions effectively and professionally. It also requires scientific and cognitive skills, but it is not an exact science because accounting rules and principles are constantly changing and developing to improve private operations out. ^[3]

The main aspects of accounting

Accounting consists of 3 main aspects, which are as follows:

record keeping system

This system requires the use of a standard set of accounting policies and procedures using standardized models, and the procedures include controls that ensure the use of the facility's assets in the manner required to achieve its goals, and establishments usually use ready-made and commercially available accounting programs as a basis upon which the record-keeping system is built to ensure the best use of it for the facility. ^[4]

Transaction Tracking System

Collecting information on each type of business transaction needs a separate procedure, for example, the facility needs different systems to fulfill customer orders, issue invoices, collect revenue, and others, and tracking information is the most time-consuming part of the accountant. ^[4]

preparing financial reports

This process is conducted in a specific manner in accordance with Generally Accepted Accounting Principles (GAAP) and International Accounting Standards (IFRS), which determines the method that should be used in processing business transactions in records and compiling them in financial statements, which are the income statement, balance sheet, cash flow statement, and disclosure statements, Which gives the results of the financial period and the financial position of the enterprise at the end of that period. ^[4]

types of accounting

Accounting includes many types related to various financial and commercial transactions, the most important of which are the following: ^[5]

Financial Accounting: It includes recording and classifying financial and commercial transactions and preparing financial data for use inside and outside the facility. In preparing these statements, emphasis is placed on conforming to generally accepted accounting principles (GAAP), and this type of accounting is also concerned with data bearing dates.
Management accounting: focuses on providing information for internal use in the facility, specifically for the use of decision makers, and therefore focuses on their information needs more than compliance with generally accepted accounting principles. Management accounting includes financial analysis, budget planning, cost analysis, evaluation of business decisions, and the like.
Tax accounting: aims to help clients comply with applicable tax laws, and includes tax planning, advisory services to reduce tax by legal means, and evaluation of the results of tax decisions and related matters.
Cost accounting: Cost accounting is one of the departments of management accounting and refers to the recording, presentation and analysis of the costs of the facility, and this type is very important in industrial work that includes complex inputs to costs.
Fiduciary accounting: It is based on trust in one party to deal with financial accounts, so that this party abides by the accounting procedures related to real estate, trust funds, investments, and others, on behalf of their clients, and also provides financial information to clients annually; Including a summary of all accounts, schedules of receipts, gains, losses, and assets they own and can dispose of. ^[6]
Forensic accounting: reconfigures the entity's financial information in the event that some information required for an audit is missing; This is with the aim of compiling all documents and recording them accurately for all credit and cash transactions in the financial statements, and this type of accounting often enters into legal cases related to fraud, claims, and disputes. ^[6]
Public Accounting: Accounting consultancy is provided to its clients based on their needs, such as: auditing, tax procedures, procedures for using certain technology or computer programs, and providing legal advice. ^[6]
Governmental Accounting: ie financial planning, allocating resources to various local or federal government departments, and controlling the government's budget, and operates based on the Government Accounting Standards (GASB). ^[6]
Accounting information systems: This type of accounting helps to improve accounting procedures, where workers can monitor the productivity of these procedures during a certain time frame, as well as suggest the introduction of updated technology to improve them, and workers in this field and in conjunction with the information technology department can take decisions to install and continuity of these technological processes . ^[6]
Accounting audit: It is a branch of public accounting; It consists of an external audit aimed at examining the financial statements by an independent external party to express an opinion on the fairness of the statements and their compliance with generally accepted accounting principles, and an internal audit aimed at evaluating the adequacy and efficiency of the organizational structure in the control and internal control of the facility. ^[5]^[6]

Accounting principles

Accounting principles are defined as a set of general rules that must be followed when preparing financial statements that are distributed to users from outside the facility, and include the following basic and guiding principles and accounting assumptions: ^[7]

Cost principle.
Matching principle.
The principle of full disclosure.
Revenue recognition principle.
Principles of materialism, conservatism, consistency, and others.
sector-specific regulations.

Accounting uses

Accounting is used in many areas in the business world, and the most important of these uses are the following: ^[8]

Paying Taxes: Accounting data is used to complete the tax calculation and submit it on time.
Loan insurance: Accounting data assists lenders in determining the eligibility of borrowing facilities and their ability to repay.
Achieving the conditions of the regulatory authorities: Some establishments must submit detailed reports on their financial status to the regulatory authorities, and the accounting data provide the basis for these reports.
Providing Shareholders with Financial Reports: Shareholders in the facility request detailed financial information based on accounting records to assess the financial solvency of the facility and thus the potential of their investments.
Providing capital markets with financial reports: Capital markets require accurate accounting and financial data for the companies participating in the financial market, which are affected by the share prices of these facilities.
Communicating with Managers: Establishments should announce their financial status to managers through detailed financial and accounting statements and reports to estimate budget and costs; This is to assist them in the decision-making process, cost planning, and measure the economic performance of the facility. ^[2]^[8]

Importance of Accounting for Small Business

Small businesses are advised to pay serious attention to accounting because of its importance in proper planning and avoiding wrong financial practices, and among the most important contributions of accounting in the development of small businesses are the following: ^[9]

Growth planning: Financial statements help small businesses assess the speed with which the business grows and develops, and without it, these businesses tend to adopt easy measures to evaluate the business, such as sales growth, which do not give a full picture of the financial situation and preparedness of the business for growth.
Loan insurance: Accounting helps to provide and present financial and up-to-date data about the facility; Which helps her secure loans and grants.
Revenue collection: The existence of a balance of payments from accounting facilitates the process of tracking revenue collection effectively, as the facility can set methods and dates for collection and follow-up with customers, thus ensuring the presence of cash when needed.
Exemption from fines and penalties: Proper accounting provides complete and accurate accounting records which in turn reduce the risk of violating tax laws and ensure that tax calculations are completed accurately and on time.

Accounting and its types can be briefly defined as the process of recording financial procedures and transactions carried out by a business, through recording in records, tracking transactions, and preparing reports, whether for the purposes of administrative, financial, tax, criminal, or other accounting. Accounting is based on important principles. ; As the principle of cost, matching, full disclosure, and revenue recognition, the importance of accounting is highlighted in small businesses and large projects, as it is used to pay taxes, secure loans, fulfill the conditions of regulatory authorities, and other uses.

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