What Is Accounting? Definition, Types and Key Concepts

Accounting is the information system that records, classifies, summarizes and reports to stakeholders all of a business's transactions that can be measured in money. Sales, purchases, collections, payments, debts, receivables, salaries, taxes... Every event that happens to a business and can be expressed in monetary terms is the subject of accounting. In this article, we cover the definition of accounting, its types, its key concepts and its often-confused difference from bookkeeping in plain language.

Definition and Purpose of Accounting

In its simplest form, accounting is the financial language of a business. It records every monetary event in the business based on documents, classifies these records according to a defined structure and presents them as summary statements at the end of the period. This way, parties such as business owners, managers, shareholders, the state and banks can see the company's financial position reliably.

Accounting has four core functions:

1. Recording: Entering monetary transactions into the books based on their documents.
2. Classifying: Grouping records into accounts according to their nature.
3. Summarizing: Consolidating records into statements at the end of the period.
4. Reporting and interpreting: Presenting the resulting statements in a way that lets stakeholders make decisions.

In Turkey, the bookkeeping obligations of commercial enterprises are regulated by the Tax Procedure Law and the Turkish Commercial Code; the framework for the recording system is set by the Uniform Chart of Accounts.

Types of Accounting

Although accounting may look like a single whole, it splits into three main branches depending on the question it answers.

1. General Accounting (Financial Accounting)

The main branch that records the business's assets, liabilities, equity, income and expenses. Its outputs are financial statements such as the balance sheet and the income statement. General accounting is primarily accountable to parties outside the business — the state, banks, shareholders — which is why it is strictly bound by legal rules.

2. Cost Accounting

It answers the question: "How much does the good or service we produce actually cost us?" It calculates unit cost by tracking raw materials, labor and general production expenses. In manufacturing companies it forms the basis of pricing, efficiency and inventory valuation decisions.

3. Management Accounting

It processes the data produced by general accounting and cost accounting so that company management can make decisions. Budgeting, comparison, variance analysis and forward-looking planning are the subjects of this branch. It is not a legal obligation; it is shaped entirely by internal business needs.

Key Accounting Concepts

The part newcomers to accounting struggle with most is the terminology. The most commonly used concepts are:

• Account: A ledger sheet where transactions of the same nature are tracked. For example, the "Cash" account tracks cash inflows and outflows.
• Chart of accounts: The systematic list of all accounts in the business. In Turkey, the Uniform Chart of Accounts is used; accounts are divided into main groups from 1 to 9 (for example, 1 for current assets, 6 for income statement accounts).
• Journal (daybook): The book where transactions are recorded entry by entry, in chronological order. Every record must be based on a document.
• General ledger: The book where journal entries are aggregated by account. All of an account's activity during the period can be seen here.
• Trial balance: A control schedule showing the debit and credit totals of all accounts at a given date. It is used to test the mathematical accuracy of the records.
• Balance sheet: The statement showing the business's assets and resources at a specific date; it is a snapshot of the business at that moment.
• Income statement: The statement showing the income earned and the expenses incurred over a period, together with the period's profit or loss.

These concepts are chained together: document → journal → general ledger → trial balance → financial statements. The operation of accounting is essentially the orderly running of this chain.

How Does the Accounting Process Work?

An accounting period usually coincides with the calendar year and proceeds through defined steps. At the start of the period, the opening entry is made; throughout the year, every transaction is entered into the journal based on its document and posted to the relevant accounts in the general ledger. At month-ends and period-ends, a trial balance is prepared to check the consistency of the records. At period-end, closing procedures such as depreciation, valuation and provisions are carried out; the balance sheet and income statement are prepared, and the new period starts with an opening entry. For this cycle to run without interruption, documents must reach accounting completely and on time; in practice, most delays stem not from recording technique but from document flow.

The Difference Between Accounting and Bookkeeping

There are two concepts that are often confused in everyday language: accounting and bookkeeping (pre-accounting). Bookkeeping keeps records of day-to-day transactions such as cash, bank, checks and promissory notes, current accounts (customer and supplier balances), inventory and invoice tracking. It can usually be carried out within the business without formal accounting training. Official book records, tax returns and financial statement preparation, on the other hand, are the job of general accounting — that is, the certified accountant or the accounting department.

In short, bookkeeping collects the data, and accounting turns that data into official records and reports. The two are not alternatives to each other; they are consecutive links in the same chain. If you want to explore the topic in detail, take a look at our article What Is Bookkeeping?.

Why Is Accounting Important?

Properly maintained accounting provides a business with three fundamental benefits:

• Legal assurance: Tax returns and official books are prepared accurately and on time; the risk of penalties decreases.
• Sound decisions: Managers see profit, cost and cash positions based on real data; pricing and investment decisions rely on records, not guesswork.
• Credibility: The company's financial statements build trust with banks, shareholders and business partners.

On the other hand, the quality of accounting depends on the quality of the data that reaches it. Lost receipts, late-arriving invoices and manual transfers make period-end closing difficult even for the most organized accounting team.

Transferring Expense Data to Accounting

One of the most fragile links in the accounting chain is getting employee expenses and invoice documents to accounting. Masraff is not an accounting program; it is an expense management layer that takes over this data collection step upstream of accounting. Employees' receipts and invoices are captured instantly from the mobile app, go through the approval process and become organized data ready to be transferred to the accounting or ERP system you use. This way, the accounting team focuses on recording and reporting instead of chasing documents. For details, see our invoice and accounting product page.