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What is accounting

Accounting is the process of keeping a detailed record of all the financial transactions in a business.

Why is accounting important?

The intrinsic importance of accounting lies in its ability to furnish a discernible evaluation of a company’s fiscal health. By delineating profit margins and potential losses, accounting empowers businesses to make informed decisions.

Beyond its internal utility, accounting extends transparency to external stakeholders, including investors, stakeholders, and creditors, aiding them in evaluating the viability of investments and projecting potential returns.

Moreover, accounting plays a pivotal role in ensuring compliance with tax regulations. It serves as the backbone for calculating company taxes, maintaining accurate records of income and expenses.

Types of accounting

  1. Financial Accounting: This facet focuses on recording and reporting financial transactions and cash flows. Primarily directed towards external entities, financial accounting produces statements such as balance sheets and income statements, adhering to standards like UK GAAP and IFRS.
  2. Managerial Accounting: Internally oriented, managerial accounting utilises financial data for continuous evaluation and interpretation, facilitating frequent decision-making for organisational advancement.
  3. Cost Accounting: This sector involves meticulous tracking, analysis, and comprehension of costs associated with daily business operations, ensuring expenditure aligns with overarching business objectives.
  4. Tax Accounting: Focused on tracking and reporting income and expenses relevant to taxation, tax accounting ensures adherence to regulatory tax requirements.