Accounting is meant to keep a complete record of the business transactions in a sequential manner, which forms a base for the preparation of the financial statements of the company. It aims at providing information to the interested parties to make sound financial decisions.
Accounting is a business language in which the economic activities of the enterprise are recorded and presented. On the contrary, the profession opted by accountants is termed accountancy.
Who is an Accountant?
An accountant is a professionally qualified person who performs accounting functions, i.e. preparing and maintaining accurate financial records of the enterprise.
Accounting and Accountancy, two are commonly misconstrued by many students however there are subtle differences between the two which we will be discussing in this post.
Content: Accounting Vs Accountancy
- Comparison Chart
- Key Differences
- What is Accounting Cycle?
- Branches of Accounting
|Basis for Comparison||Accounting||Accountancy|
|Meaning||Accounting is a systematic process that involves measurement, recording, classification, summarizing, presenting and interpreting the financial information of an organization.||Accountancy implies the systematic body of knowledge that prescribes accounting principles, conventions and techniques, which are to be followed during the accounting process.|
|Explains||Nature of work performed by the accountants.||Profession pursued or opted by the accountants.|
|Concerned with||Practical part||Both theoretical and practical part|
|Relatedness||It is an action based on the knowledge of accountancy.||It is a field of knowledge that indicates the route to accounting.|
|Tools||Financial Statements||Principles and Techniques|
Definition of Accounting
Accounting is all about the preparation of financial statements and their presentation in the simplest possible manner, based on the information recorded, using the bookkeeping process by the bookkeeper. In the process of bookkeeping, business transactions and events are identified and recorded systematically. It is the summarizing stage, which is concerned with the analysis and interpretation of the bookkeeping records.
Accounting is a discipline based on varied terms, rules, principles, and standards which are required to be followed. It provides quantitative information concerning the economic activities of the enterprise that plays an important role in the decision-making process.
In simple words, it is the means through which the financial performance and position of the business entity, are communicated to the users of the financial statement.
Objectives of Accounting
- To maintain a proper record of the business transaction.
- To calculate the profit and loss of the business during the financial year.
- To showcase the financial position of the business at the end of the financial year.
- To keep effective control over the business.
- To provide financial information to the interested parties.
Also Read: Difference Between Accounting and Auditing
Definition of Accountancy
Accountancy is the set of concepts, principles, techniques, and rules that constitutes the framework of accounting. Also, accountancy entails complete knowledge of accounting which includes both conceptual understanding of the subject and practical application as to the maintenance of books of accounts.
- It is concerned with the ‘why to do’ and ‘how to do’ facets of accounting.
- It provides background to an accounting system.
- It has a wider coverage, that covers both book-keeping and accounting.
Accountancy explains – for what reason and in what way, the firm’s books of accounts are prepared, as well as the manner in which accounting information is summarized and communicated to its users.
Also Read: Difference Between Accounting and Finance
Key Differences Between Accounting and Accountancy
As we have already talked about the meaning of these two terms, now we will move forward to understand the difference between accounting and accountancy:
- Accounting is a process used to maintain a record of financial transactions while complying with all the standards, principles, and concepts. On the other hand, accountancy is the systematic body of knowledge that specifies various accounting principles, standards, and conventions, that are used to record the accounting information of the enterprise.
- Accounting is a discipline that is concerned with the nature of work performed by accountants. As against, by the term ‘accountancy’ we mean the profession of the accountants.
- While accounting deals with the practical part, accountancy deals with both conceptual, i.e. theoretical and practical parts. Therefore we can say that what we practice is accounting, but what we study and apply is accountancy.
- Accounting is the action that is based on the knowledge of accountancy, whereas accountancy is the field of knowledge that shows the route to accounting.
- When it comes to scope, accountancy has a wider scope than accounting, because accountancy includes both bookkeeping as well as accounting.
- The primary tool of accounting is the financial statements, i.e. trading and profit and loss account, balance sheet, and cash flow statement. On the other hand, the accounting principles, standards, rules, concepts, and conventions, the tools of accountancy.
What is Accounting Cycle?
Accounting Cycle is a step-by-step process of entering and processing a business transaction of a firm, beginning with the occurrence of the transaction to the presentation of the financial statement and making closing entries for the period. It involves the following steps:
- Step 1: Identification of transactions.
- Step 2:Recording the transactions into a journal or journalizing
- Step 3: Posting the transactions in the ledger.
- Step 4:Balancing the ledger accounts, by ascertaining the difference in the total amount appearing in the debit column and the total amount appearing in the credit column.
- Step 5: Preparing trial balance, by creating a table that enlists the balances of all ledger accounts, to check if the sum of all debit accounts equals the sum of all credit accounts.
- Step 6: Inclusion of adjustment entries and passing rectification entries.
- Step 7: Preparing trading and profit & loss account, to determine the profit and loss for the period.
- Step 8: Preparing a Balance sheet to know the financial position of the enterprise at the end of the accounting year.
Branches of Accounting
Financial Accounting is the original form of accounting that is related to the ascertainment of transactions having financial character, during the specified period and recording them in chronological order, and preparing final accounts out of that information so as to analyze and interpret the results thereof.
The branch of accounting which is concerned with the classification, accumulation, apportionment, and control of costs and preparation of reports, is cost accounting.
Management Accounting is concerned with facilitating the managerial decision-making process by providing relevant financial information to the managers. It plays a significant role in framing policies and budgets for businesses and controlling the activities.
Social Responsibility Accounting
Also known as social accounting or sustainability accounting, it is the process of disseminating the social and environmental impact of the economic activities undertaken by the organization.
Human Resource Accounting
So, with the above discussion, it is clear that accounting is a discipline, just like other disciplines, whereas accountancy is a profession that involves financial reporting and analysis of business activities.