Introduction

Accountancy is the way of communicating useful financial information about a business entity to some interested parties (shareholders, managers and potential investors) so that they can make wise decision.

The information basically tells the parties about the economics resources under the control of the management of the company and its performance in term of some ratios.

The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing.

Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."

Today, accounting is called "the language of business" because it is the way for reporting financial information about a business entity to many interested parties.

Management accounting is the type of accounting that provide information to those who are inside the company (insiders), for example: employees, managers, owner-managers and auditors. Management accounting prime objective is to provide information for managers to make management or operating decisions.

Financial accounting is the accounting type that provide information to those who are outside the company, for example: potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies.

The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.