2019-12-27 05:31:33Finance and AccountingEnglishFrom Cash Accounting to Managerial and Cost Accounting, QuickBooks explains the different Accounting types.https://quickbooks.intuit.com/za/resources/finance-and-accounting/what-is-accounting/What Is Accounting? | Accounting FAQs | QuickBooks SA

What is Accounting?

4 min read

In the simplest terms, Accounting is the method used to track money moving into and out of a company.

At a more detailed level, Accounting is the process of recording all the financial transactions that relate to a business.

The accounting process includes summarising, analysing and reporting these transactions to oversight agencies, regulators, and tax collection entities like SARS.

Accounting records are also incredibly useful for company owners, who use them to make decisions about their companies and how to manage them in the future.

The three main financial statements (income statement, cash flow statement and balance sheet) used in accounting are a concise summary of a company’s financial transactions over an accounting period. They help company owners understand their businesses’ cash flow position, profitability, expenses, revenues and more.


What is an Accountant?


For larger companies, accounts are usually handled by a chartered accountant or a team of accountants, who provide help with both financial administration as well as risk analysis and reporting. For smaller companies and sole proprietors, it’s more common for business owners to perform their own accounting, or to work with a consultant on an as-needed basis. 


What is Accounting Software?


Instead of working offline using paper-based systems, more and more businesses today use special software designed to help with accounting and cash flow tracking. Designed to streamline bookkeeping, cut down admin time and increase business productivity, accounting software lets small business owners focus more time on truly value-adding tasks, such as finding new business, creating new products, overseeing staff and talking to suppliers.

Accounting software also allows you to instantly and securely handle and share data between financial advisers, decision-makers and any accountants you employ. This can be very helpful as managing a business successfully is often a collaborative effort, and teams are not always together in one place.


Splitting Accounting into different functions

Businesses operate using three systems of accounting. These are: financial (cash) accounting, cost accounting, and management accounting. 


  • Financial/cash accounting is a catch-all term that refers to the process we described above. Namely, financial accounting involves recording the way money moves into and out of a business. The process summarises all of a company’s transactions, can be shared with auditors and lenders, and is used to track its tax obligations. During the process of financial accounting, financial statements are prepared: including the balance sheet, income statement and cash flow statement. These statements record the company’s operating performance over a specified period, as well as other information, such as its assets and liabilities. Financial accounting is what outside investors and creditors typically see when evaluating a business.


  • Cost accounting, on the other hand, is the process by which businesses analyse and make decisions about costing internally. When you’re developing a product or service to deliver to market, it’s important to analyse all the related costs to ensure you price your goods appropriately. Cost accounting, therefore, takes into account all the money involved in product or service creation, enabling management to understand the way that money flows out of the business and helping them make sound decisions about the timing of purchases and pricing. At a more detailed level, cost accounting is used by a company’s internal management team to identify both the variable (i.e. changing) and fixed costs associated with the production process. By first measuring and recording these costs individually, then comparing input costs to output results under various scenarios, it is possible to measure possible financial performance and make future business decisions. The types of costs included in cost accounting are: fixed costs (things like bond or lease payments on a building); variable costs (e.g. inventory costs); operating costs (costs associated with the day-to-day operations of a business, which can be either fixed or variable); direct costs (such as labour costs tied to production) and indirect costs (such as energy costs for a production line which produces multiple products).


  • The final accounting type used by businesses is management accounting. While management accounting uses much of the same information as cash accounting, it is done for a different purpose: namely, making predictions and forecasts, producing budgets and assisting with decisions on how a business should operate, if it hopes to run optimally. During the management accounting process, cash flow, profit and invoice data is incorporated and analysed, providing crucial information on likely future performance and helping managers with the decision-making process. Managerial accounting aims to improve the quality of information delivered to management about business operation through calculating certain specific metrics. In some ways, cost accounting is a subset of managerial accounting that specifically focuses on capturing a company’s total costs of production by assessing the variable costs of each step of production, as well as fixed costs. 

For many South African entrepreneurs, understanding all the ins and outs of the accounting process is a daunting task. Others simply lack the time needed to do their own accounting, as they are too busy managing the day-to-day requirements of the business.

However, help is at hand. With QuickBooks Cloud accounting solutions, you can manage your accounts anywhere, collaborate with colleagues and access your data securely, whether you choose to employ the help of an accountant or not. 

Better yet, you can access free unlimited support, create and send customised business forms on the go, and view how your business performing with detailed reports and dashboards. It’s the easy, simple way to manage all your small business accounting needs. With detailed information about your business, including profit, cash flow, revenue and cost data and more at the touch of the button, you can understand how your business is performing whenever, wherever.


Discover more free Small Business Resources at the Intuit QuickBooks Resource Centre to help grow your business in South Africa today.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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