Encyclopedia of Investment Terminology

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Accounting is the process of recording, classifying and disclosing in a consistent way financial transactions. Lenders, managers, and investors rely on accounting to make decisions.

Accounting can be divided into two main branches: Financial Accounting and Managerial Accounting.

  • Financial Accounting records, classifies and summarizes financial information in such a way that it will become a valuable asset to any business. Accountants must perform their duties within the rules and regulations of GAAP (Generally Accepted Accounting Principles) to guarantee the transparency of the information. Users of Financial accounting include investors, and lenders among others.

  • Managerial Accounting involves the interpretation of information in a way that it will be beneficial to managers during the decision making process of any business. Managers within a company are the users of managerial accounting, and for this reason, managerial accounting does not need to follow GAAP.

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