Contractor License Practice Exam 2025 - Free Contractor License Practice Questions and Study Guide

The term that describes a system of recording and summarizing business and financial transactions is accounting. Accounting encompasses a range of activities, including the systematic recording, reporting, and analysis of financial transactions. It provides a comprehensive framework for understanding a company’s financial health, as it integrates the processes of gathering financial data, maintaining financial records, and producing financial statements.

While bookkeeping, which is also present in the choices, refers specifically to the recording of financial transactions, accounting extends further to include summarizing, analyzing, and interpreting those records. Auditing, on the other hand, is the examination of financial statements and processes to ensure accuracy and compliance with laws, while financial reporting is the process of presenting financial data to stakeholders. Therefore, accounting serves as the umbrella term that encapsulates the complete system of managing and conveying financial information for a business.