Understanding Accounting: Concepts and Applications
Accounting Concepts
Accounting involves techniques used to produce structurally systematic and quantitative information, expressed in monetary terms, about transactions carried out by an economic entity. It also includes certain identifiable and measurable economic events that affect it. The objective is to provide stakeholders with information for decision-making regarding the economic entity.
Cost Accounting
Cost accounting is a classified information system that collects, controls, and allocates costs to determine expenses and facilitate decision-making, planning, and administrative control.
Cost Accounting Objectives:
- Generate information to measure utility.
- Determine the value of inventories.
- Provide reports to help exercise administrative control.
- Provide information for decision-making.
- Generate information to help substantiate the administration or planning of operations.
Some authors define cost accounting as a bridge between management accounting and financial accounting, particularly in relation to its first two objectives.
How is Accounting Developed?
Accounting information is prepared using a specific method, which collects, collates, and summarizes events that may be important to its users. The consequences of these events are generally expressed in monetary units. The data obtained are captured in summary tables that constitute the financial or accounting statements.
Who Uses Accounting and What is it For?
Information disseminated outside the economic unit is intended to be useful for individual operators, enhancing their chances of accumulating resources. These operators could include creditors, employees, the State Public Administration (especially concerning taxes), financial institutions that collaborate with the entity, and so on.
Other information, called internal information, is used only within the domestic sphere of the business unit. The data it provides serve those responsible for planning and control management, clarifying responsibilities to act efficiently and effectively.
Accounting: Art, Science, and Technique
- Art: Accounting uses creativity to design formats and methods for control and information.
- Science: Accounting represents true knowledge. It analyzes each fact and applies acquired knowledge, avoiding irrelevant suppositions.
- Technique: Accounting works based on a set of procedures or systems for collecting, processing, and reporting data. It involves a series of steps to accomplish the task of record-keeping (bookkeeping).
Financial Accounting
Financial accounting is an information system oriented toward providing information to third parties related to the company, such as shareholders, lenders, and investors, to facilitate their decisions.
Management Accounting
Management accounting is an information system serving the needs of administration, with pragmatic guidance to facilitate the functions of planning, control, and decision-making.
Accounting as a Science
Accounting is linked to economics. As a science, it is used for administration. According to Fernandez Pirlo, accounting is divided into formal science and empirical science, which pursues knowledge and is eminently practical, providing useful information. Mattessich considers accounting an applied science used to measure a company’s wealth from its inception and how it changes over time. The main function of accounting is to accumulate and communicate quantitative information, primarily of a financial nature, about economic entities. This enables informed judgments and decisions by its users.