Term: ACCOUNTANCY

A set of conventions for recording and gathering financial transactions in an organisation. The academic discipline which is accountancy has established a set of conventions for totaling the two sides of every transaction in an organisation under a set of headings within a defined time period (known as the “accounting period”). There are four main headings – incomes, expenses, assets and liabilities. The total of incomes plus liabilities must always equal the total of expenses plus assets. This is known as the accounting equation. Each of these four main headings is then divided up into sub-headings. For example, assets can be either fixed or current – and then current assets are usually divided further into stock (inventory), debtors (account receivable) and cash and bank balances. Every transaction ever done by any organisation anywhere has two sides (debit and credit) and each of those two sides fit under one of these main headings in such a way that the balance sheet (the accounting equation) always balances. These headings are then subject to further conventions – like the profit calculation which, in simple terms, subtracts the expenses of the period from the incomes of the period in order to arrive at the profit or loss for the period.

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