Accounting Vs Accountancy
Accounting is the action or process of keeping financial accounts. Accountancy describes the duties of an accountant, the person whose job is to keep, inspect and interpret financial accounts.
In relation to business, accountancy is, in effect, the total of all actions taken by a business to:
- to record financial transactions
- to produce reports that allow stakeholders (such as managers, investors, funders, owners) of the business to make informed decisions about the financial resources under their control.
The main reasons why a business has a vital interest in accountancy are listed below.
- Government compliance: Tax laws require a business to report to the government on its revenue and income. Accountancy provides a process to meet this requirement.
- Funding: Banks, investors and finance institutions require reports on the financial performance and position of a business before they invest in, or loan funds to, that business. Accountancy provides these reports in the form of an Income Statement and a Balance Sheet.
- Financial performance: A prime function of management is to ensure that the business will endure. Accountancy provides a reporting mechanism (by way of an Income Statement) that details a business’s revenue, expenses and resulting profit. Managers can use this statement to make informed decisions to ensure the sustainability of the business.
- Budgeting and control: Financial information provided by the accountancy system allows managers to prepare budgets that become a benchmark for performance and a means of controlling the finances under their control.
- Comparison: Accountancy, because it is universally applied using accounting standards, allows businesses to be compared. This comparison provides benchmarks by which the performance of a business can be judged (that is, under- or over-performing) relative to either an industry average, previous periods or against the entire business world.