Accounting is the process of recording transactions that occur within a business, as well as creating reports for internal and external dissemination based on those transactions. Auditing, on the other hand, is the process of reviewing a business' activities, either as an overall entity or through specific departments.
The transactions covered in accounting include everything from sales and services to purchases and financing activities. All of these transactions are recorded in a series of financial journals, using a set of rules known as generally accepted accounting principles. These rules ensure that account books are standardized across organizations. Once the transactions are recorded for a specified period, a business quarter or year for example, financial reports are created by an accountant that summarize the transactions and present the financial results of business conducted during that period.
Auditing is used generally to improve a company's business methods or to find mistakes that can lead to financial or legal issues. Auditing is closely related to accounting in that it often covers the accounting process to ensure that the accountants for an organization are following the accounting principles. Auditing can also be done on any aspect of the business, checking that actual business activities are following acceptable procedures. During the auditing process, changes can be recommended as well, to make the organization more efficient or profitable.