Accounting is the process of identifying, measuring, recording, and communicating financial information about an entity to interested parties. It emphasizes accuracy, transparency, and relevance to support management and control of resources.
The American Institute of Certified Public Accountants defines accounting as:
The art of recording, classification and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.
Objectives
- Know whether the business has earned an adequate profit.
- Know whether the financial position of the business is sound.
- Communicate financial information to users.
- Support decision-making and resource management.
- Attract investors.
- Fulfill statutory reporting requirements.
- Minimize errors and omissions in recording transactions.
- Track project expenditures.
For Engineers
Engineers must be familiar with accounting concepts for:
- Effective budget management on projects.
- Better cost estimation and control.
- Enhanced communication with finance teams.
- Informed decision-making on investments.
- Optimized resource allocation.
Users of accounting information
Internal users
Parties within the entity who use accounting information for day-to-day management and control.
- Owners / shareholders
Assess profitability, return on investment, and dividend potential. - Managers
Use it for budgeting, cost control, pricing, and performance evaluation. - Employees / trade unions
Judge job security, negotiate salaries, and evaluate retirement benefits.
External users
Parties outside the entity who use accounting information to make decisions about their relationship with it.
- Investors
Base investment decisions on profitability and risk. - Creditors
Assess ability to repay loans before granting credit. - Suppliers
Assess ability to pay for goods and services on time. - Customers
Judge long-term stability for warranty and service purposes. - Government / tax authorities
Determine tax liability and regulatory compliance. - Regulatory authorities
Verify compliance with reporting standards and corporate governance. - Competitors
Benchmark financial performance and market position. - General public
Gauge economic contribution, employment, and environmental impact.