What is accounting?

Accounting is the set of methods and techniques used to monitor and measure a company’s financial performance. Accounting is a discipline whose aim is to provide reliable information on a permanent basis about a company’s financial position and results.

Accounting is a tool with two facets: financial accounting and management accounting. The purpose of management accounting is to provide the data needed to manage the company, while the main purpose of financial accounting is to provide the information needed by external parties (banks, investors, etc.).

Accounting is divided into three parts: general accounting, supplementary accounting and analytical accounting.

What is the purpose of accounting?

Management tool

Accounting is a very important management tool for a company. It provides an accurate, up-to-date picture of the company’s financial position and results. Obtaining this data will help management to make the right decisions.

Financial information tool

Accounting is also a very important tool for producing provisional statements while waiting for the financial year to close. These various statements are used to supply the company’s partners.

The three accounting ranges

General accounting

General accounting covers all flows to and from the company. They enable the company’s assets and liabilities to be identified and its performance to be measured. All companies engaged in commercial, craft, industrial or professional activities are required to keep general accounts (except companies covered by the micro system for tax purposes). General accounting comprises: the balance sheet, the profit and loss account and the notes to the accounts.

General accounting is generally entrusted to an accounting manager or a firm of chartered accountants. This person or company is responsible for ensuring that the accounts are properly kept and that the accounting information is reliable.

Supplementary accounting

Supplementary accounting is a set of specialised accounts whose purpose is to monitor and measure specific financial items. Its purpose is to provide information that complements that of the general accounts, which are more general in nature.

There are several types of supplementary accounting, such as accounts receivable, accounts payable, cash accounting, fixed asset accounting and so on. The purpose of each of these types of accounting is to track and measure the company’s specific financial items, such as trade receivables and payables, purchases and sales of goods, cash movements, fixed assets, etc.

Analytical accounting

The aim of analytical accounting is to identify the costs of the company’s various functions and not to obtain an overall view like general accounting. Analytical accounting is not compulsory, but it is strongly recommended.

Various analytical accounting methods:

• The ABC method: this activity-based costing method is based on the fact that it is the activities that consume the company’s resources, not the products.
• The standard cost method: the company determines the future costs it will have to bear
• Direct costing: this method is used in multi-product or multi-activity companies. The principle is to take into account fixed and variable costs (determine margins on variable costs and determine fixed costs).
• The variable cost method: this consists of considering only the expenses linked to the company’s activity and not all the costs that the company incurs.
• Full costing: this method is based on a distinction between direct and indirect costs