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. 

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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..