Accounting is fundamental to the organization and efficient running of almost all businesses. These businesses undertake numerous activities and engage in multiple transactions every single day, and these need to be recorded, summarized, and presented in a way that is useful to people with an interest in that information from the company's management to existing investors, as well as governments and lenders. Accounting is the process of recording and presenting this information in a meaningful way. There are a number of different types of accounting and accountants, financial management, cost, tax, forensic, and more.

We aren't going to discuss all of these, but let's look at two in a little more detail. Financial accounting and management accounting. When we look at a company's financial statements, we are dealing with financial accounting. Here, the transactions of a business over a certain period of time are summarized and reported in accordance with the prevalent accounting rules, which are also called accounting standards, principles, or practices.

The accounting rules that need to be followed will be determined by factors such as the type of business. For example, a small sole trader has to produce much less complicated accounts than a large company, and jurisdiction.

The financial statements provide a summary of the financial position, performance, and cash flows of a business, and are primarily of use to parties outside the organization.

The various external users of financial statements will have different reasons for looking at them, but the standardized nature of the financial reporting means that users have the ability to interpret the information consistently across different companies and can easily extract the information that they need. Now, imagine you are part of the management team of a business. You would most likely want more detailed information than that which is reported in the financial statements, and you would want it in a format that is of most use to you. You would also want to view information that you would not want to be reported to external parties. For example, an analysis of who your most profitable customers or products are. This is where management accounts come in. The information in management accounts Is not in a standardized format as it is intended for internal use only, and there are no accounting rules that have to be followed. The format and content of the information and reports can be tailored to suit the precise needs of management.