1.2 What is accounting?

Accounting or bookkeeping is the business of keeping detailed records of finances. Business enterprises, establishments and self-employed persons are required by law to keep accounts; some private citizens also keep more or less detailed records of their incomes and expenses.

Double entry bookkeeping is a system where every entry is made in two different places, both under credits (income) and debits (expenses). This is to make sure that the entries are made accurately.

In the national accounts, double entry bookkeeping means that we know not only the value of each economic transaction, but also where the money has come from and where it has gone. The double entry principle also allows for internal accounting checks to monitor the accuracy of statistical data.

Business enterprises and associations are required to report their accounts down to the accuracy of a euro, whereas data in the Finnish national accounts are reported to an accuracy of one million euros. Most of the data for the national accounts are drawn from statistical sources, but some have to be estimated on the basis of separate studies or surveys.

The legal obligation to keep books has great importance to the Finnish statistical system: parts of the national accounts are drawn from financial statements that are based on bookkeeping information. Business accounting and national accounting do not use the exact same terms, but when we know what is entered under each item in the financial statements of a business enterprise, this information can be used for translation into national accounting terms. For example, "operating profit" or "operating income" in business accounting is roughly the equivalent of "gross operating surplus" in national accounting terms. National accounts data are used among other things for economic policy planning and as a basis for EU funding decisions.

Examples