Skip to main content

Introduction meaning and Process of Accounting

 Introduction to Accounting:

Business is increasing day by day and becoming complex also. An organization cannot remember all its dealing for long. Therefore, it becomes necessary to keep a written record of all business transactions day by day, this lead to the development of accounting.    

A Business enterprise needs accounting information. This information is also needed by government agencies, regulatory bodies, analysts, and individual at various point of time and at different levels. 

Accounting is one of the oldest, structured management information system. This is concerned with identification, measurement, and communication of economic information of an organization to its users who may need the information for decision making. 

Meaning of Accounting

It is necessary that the recorded transaction is collected, classified and summarized. This work is done by accounting. After identifying the financial transaction, through the basic accounting process, these are recorded properly in a systematic manner in the books. 

Let’s understand the components a little better to understand the true meaning of accounting.

It is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company's operations, financial position

Accounting Process

Accounting is the process of recording financial transactions pertaining to a business. The Accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. 

Identification: 

This is the first step of accounting process. It recognize the transaction of Financial character that are essential to be recorded in books of accounts.

Measure: 

This means expressing the value of transactions in terms of Money.

Recording: 

The next process after identifying the transaction is recording. It deals with the identified transactions and record in systematic manner in the books of original entry. The books in which the transactions are recorded are called Journal.

Classifying: 

All the recorded transactions do not make any sense unless they are processed and presented that is useful to the user. Classifying deals with periodic grouping of transactions of similar nature. than they are posted in separate book called Ledger. 

Summarizing: 

The end motive of any business is to earn profit. to know the actual profit or loss it is necessary to summarize the transactions that are occurred and recorded. This function involves the preparation of financial statement such as income statement , balance sheet etc..

Analysing: 

Its purpose is to identify financial strength and weakness of an enterprise. It involves using various tools like Ratio Analysis, Fund Flow Analysis..

Interpreting: 

This is the important for all the data in a manner that end user of financial statement can make a meaningful judgement of Profitability and financial position of business.

Communicating: 

This deals with the analysed and interpreted data in form of final reports of financial information. this is important part of accounting to decide what to communicate, when to communicate and How much to Communicate in what form to communicate. For example Profit and Loss statement, Balance Sheet, cash flow statement, Fund flow Statement etc..          

Labels:

Comments

Post a Comment

Popular posts from this blog

Objectives of Accounting

In earlier post we came across what is accounting and basic terminology used in accounting.  Accounting helps us to produce an accurate financial status of firm with all essential aspects. Here we will see the Main objectives of accounting. Accounting :  It is defined as the task of systematically recording, reporting and achieving Financial position of the business. The accounting department analyze all the statistical data for preparation of Financial accounts. Objectives of Accounting: Accounting has a lot of clearly defined objectives to work with. The objectives may also differ based on business we belong to. Now we will see the objectives of accounting. Record Keeping:  The basic objective of accounting is to record transactions in systematic manner. This is most important objective because systematic record leads to analyze accurate financial statement or position of Business. Analyzing and ascertaining the financial results:  Business is run to earn profits. Whether the busines
Post a Comment
Read more

Basic Terms used in Accounting - Part 1

 In earlier post we have learnt about meaning and process of Accounting . Here we will see basic terms used in accounting. In accounting, many technical words are commonly used. Therefore, it is essential to know their meaning, without which knowledge of accounting subject will be incomplete. Commonly used terms such as business, entity, asset etc are explained here. Business Transaction Capital Share Asset Liability Equity Purchases Sales Debtors Creditors Journal Ledger Entry Narration Voucher Profit Loss Business: Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply, it is "any activity or enterprise entered into for profit. It does not mean it is a company, a corporation, partnership, or have any such formal organization. Accounting Terms Transaction:  It is transfer of Goods from one person to another or one person's account to another. These can be cash t
Post a Comment
Read more